<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 11, 1994
REGISTRATION NO. 33-50297
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
KMART CORPORATION
(Exact Name of Registrant as Specified in its Charter)
-------------------------
<TABLE>
<S> <C>
MICHIGAN 38-0729500
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
</TABLE>
3100 WEST BIG BEAVER ROAD
TROY, MICHIGAN 48084
(810) 643-1000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------------
A. N. Palizzi
Executive Vice President and
General Counsel
Kmart Corporation
3100 West Big Beaver Road
Troy, Michigan 48084
(810) 643-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C>
Verne C. Hampton, II Richard D. Rudder
Dickinson, Wright, Moon, Brown & Wood
Van Dusen & Freeman One World Trade Center
500 Woodward Avenue, Suite 4000 New York, New York 10048
Detroit, Michigan 48226
</TABLE>
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box. /
/
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH SERIES OF AMOUNT BEING OFFERING PRICE OFFERING AMOUNT OF
SECURITIES BEING REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
% Secured Lease Bonds Series A................... $ 100% $ $
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% Secured Lease Bonds Series B................... $ 100% $ $
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% Secured Lease Bonds Series C................... $ 100% $ $
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Total.............................................. $172,300,000 100% $ $55,123.92*
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</TABLE>
* Of which $41,468.75 was previously paid in September 1993 relating to
$132,700,000 aggregate principal amount of secured lease bonds previously
registered.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
constitute an offer to sell or the solicitation of an offer
to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH , 1994
PROSPECTUS
$172,300,000
SECURED LEASE BONDS, SERIES A, B AND C
DUE, RESPECTIVELY, , AND .
Each of the Bonds offered hereby will be secured primarily by (i) a pledge
by FGHK, Inc., a New York corporation (the "Issuer"), to The Bank of New York
(in such capacity, the "Bond Trustee") of certain notes issued as non-recourse
obligations of 24 separate Owner Trusts (as defined herein) to refinance a
portion of the purchase price of each Owner Trust's interest in one of 24
commercial properties (the "Properties") operated by Kmart Corporation ("Kmart")
or one of its subsidiaries, (ii) a present assignment by the Issuer of its
rights under the Note Indentures (as defined herein) and (iii) a present
assignment of all of the Note Trustee's (as defined below) rights and interests
in and to (a) the Leases (as defined below), (b) the Mortgages (as defined
herein) and (c) the Options to Lease (as defined herein). Three series of notes
(the "Series A Notes," the "Series B Notes" and the "Series C Notes";
collectively, the "Notes"), issued in respect of each Property, will each have
an interest rate and a maturity date corresponding to a series of Bonds. The
Notes issued in respect of a Property are secured primarily by (i) a
first-mortgage lien on the appropriate Owner Trust's interest in such Property
and (ii) a present assignment of certain of the rights of the Owner Trust, as
lessor under the lease (the "Lease" and collectively for all of the Properties,
the "Leases") relating to such Property. Principal of, premium, if any, and
interest on the Bonds will be payable from rental payments due under the Leases
to be paid by
KMART CORPORATION
The rent payable by Kmart under the Leases will be in amounts that will be
at least sufficient to pay in full, when due, all payments of principal of,
premium, if any, and interest due on the Notes, which amounts will be paid
directly to the Bond Trustee for distribution on the Bonds. The Series A Bonds,
Series B Bonds and Series C Bonds will mature, respectively, on ,
, and , and will be in the aggregate principal
amounts shown in the table below. Interest on each series of Bonds will be
payable to holders of the Bonds on January 1 and July 1 of each year, commencing
July 1, 1994, at the applicable interest rates set forth below, until the
principal amount of such series of Bonds has been repaid. The Bonds are subject
to scheduled redemptions, in part, through the operation of a sinking fund. The
Bonds will also be redeemed under certain circumstances, in whole or in part, at
a redemption price equal to the unpaid principal amount thereof or the portion
thereof to be redeemed, plus accrued interest thereon and, in certain
circumstances, a Make-Whole Premium (as described herein). For sinking fund and
other redemption provisions, see "DESCRIPTION OF THE BONDS -- Distributions on
the Bonds" herein.
ALTHOUGH PAYMENTS UNDER THE LEASES IN AMOUNTS NECESSARY TO PERMIT TIMELY
PAYMENTS OF PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST DUE ON THE BONDS ARE
DIRECT OBLIGATIONS OF KMART, NEITHER THE BONDS NOR THE NOTES REPRESENT AN
INTEREST IN OR DIRECT OBLIGATION OF, AND ARE NOT GUARANTEED BY, KMART OR ANY OF
ITS AFFILIATES. NONE OF THE BONDS, THE NOTES, THE MORTGAGES OR THE LEASES ARE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
Elections will be made to treat the three separate pools of assets,
consisting principally of the Series A Notes, Series B Notes and Series C Notes,
respectively, as three separate real estate mortgage investment conduits (the
"Pool A REMIC", the "Pool B REMIC" and the "Pool C REMIC", respectively; and
collectively, the "REMICs") for federal income tax purposes. As described more
fully herein, the Series A Bonds, Series B Bonds and Series C Bonds will
constitute the "regular interests" in the Pool A REMIC, Pool B REMIC and Pool C
REMIC, respectively. See "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" herein.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
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UNDERWRITING
PRINCIPAL PRICE TO DISCOUNT AND
AMOUNT PUBLIC COMMISSIONS(1) PROCEEDS
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<S> <C> <C> <C> <C>
% Secured Lease Bonds, Series A.................... $ 100% $ $
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% Secured Lease Bonds, Series B.................... $ 100% $ $
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% Secured Lease Bonds, Series C.................... $ 100% $ $
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Total................................................. $172,300,000 $
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</TABLE>
(1) The underwriting discounts and commissions and certain expenses related to
the offering, estimated to be $ , will be paid as described herein. See
"UNDERWRITING" herein.
------------------------
The Bonds are offered by Bear, Stearns & Co. Inc. (the "Underwriter")
subject to prior sale when, as and if delivered to and accepted by the
Underwriter and subject to certain other conditions. The Underwriter reserves
the right to withdraw, cancel or modify such offer without notice and to reject
any order in whole or in part. It is expected that delivery of the Bonds will be
made in book-entry form only through the Same Day Funds Settlement System of The
Depository Trust Company ("DTC"), on or about March , 1994.
------------------------
BEAR, STEARNS & CO. INC.
March , 1994
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
Kmart is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Proxy statements, reports and other information
can be inspected and copied at the public reference facilities at the
Commission's office at 450 Fifth Street, N.W., Washington, DC 20549, and at the
Commission's regional offices in Chicago (500 West Madison Avenue, Chicago, IL
60661) and New York (7 World Trade Center, 13th Floor, New York, NY 10048).
Copies of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates.
Kmart's common stock is listed on the New York Stock Exchange, the Chicago Stock
Exchange and the Pacific Stock Exchange. Reports, proxy statements and other
information concerning Kmart can be inspected and copied at the New York Stock
Exchange, 20 Broad Street, New York, NY 10005 and at the Pacific Stock Exchange,
301 Pine Street, San Francisco, CA 94104.
Kmart has filed with the Commission a registration statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Bonds. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement. The Registration Statement may be inspected without
charge at the public-reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, DC 20549, and copies thereof may be
obtained from the Commission upon payment of prescribed rates.
REPORTS TO BONDHOLDERS BY THE BOND TRUSTEE
Unless and until Definitive Bonds (as defined herein) are issued (which
will occur only under the limited circumstances described herein), certain
periodic statements concerning payments on the Bonds will be sent by The Bank of
New York, as Bond Trustee under the Bond Indenture pursuant to which the Bonds
are to be issued (as more fully described herein), to Cede & Co. ("Cede"), as
nominee of DTC, the registered holder of the Bonds. See "DESCRIPTION OF THE
BONDS -- Registration of the Bonds" and "-- Definitive Bonds" herein.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Kmart's Annual Report on Form 10-K for the fiscal year ended January 27,
1993, and its Quarterly Reports on Form 10-Q for the fiscal quarters ended April
28, 1993, July 28, 1993, and October 27, 1993, its Preliminary Proxy Statement
dated February 4, 1994, in connection with its May 24, 1994 Annual Meeting of
Stockholders and all documents filed by Kmart pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act, after the date of this Prospectus and prior to
the termination of the offering of the Bonds described herein, shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the dates of the filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this Prospectus modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
KMART WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS
DELIVERED, UPON SUCH PERSON'S WRITTEN OR ORAL REQUEST, A COPY OF ANY OR ALL OF
THE INFORMATION THAT HAS BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS (NOT
INCLUDING EXHIBITS TO SUCH INFORMATION UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH INFORMATION). ANY SUCH REQUEST SHOULD BE
DIRECTED TO THE CORPORATE REPORTING DEPARTMENT, KMART CORPORATION, 3100 WEST BIG
BEAVER ROAD, TROY, MI 48084 (TELEPHONE NO. (810) 643-1093).
2
<PAGE> 4
PROSPECTUS SUMMARY
The following information is qualified in its entirety by the detailed
information appearing elsewhere or incorporated by reference in this Prospectus.
Certain capitalized terms used in this summary are defined elsewhere in the
Prospectus on the pages indicated in "INDEX OF PRINCIPAL TERMS" herein.
<TABLE>
<S> <C>
ISSUER............................... FGHK, Inc., a New York corporation (the "Issuer").
SECURITIES OFFERED................... $ principal amount of % Secured Lease
Bonds, Series A, due (the "Series A
Bonds").
$ principal amount of % Secured Lease
Bonds, Series B, due (the "Series B
Bonds").
$ principal amount of % Secured Lease
Bonds, Series C, due (the "Series C
Bonds"; and together with the Series A Bonds and
Series B Bonds, the "Bonds").
The Bonds, together with the Series AR, Series BR and
Series CR Bonds not offered hereby, will be issued
pursuant to a Collateral Trust Indenture (the "Bond
Indenture"), to be dated as of March , 1994 (the
"Closing Date"), between the Issuer and the Bond
Trustee.
BOND TRUSTEE......................... The Bank of New York, a New York banking corporation
will act as Bond Trustee (in such capacity, the "Bond
Trustee") under the Bond Indenture.
INTEREST PAYMENTS.................... Interest will be payable in immediately available
funds on the unpaid principal amount of each
outstanding series of Bonds at the applicable
interest rate on each January 1 and July 1 (each, a
"Payment Date"), commencing on July 1, 1994, to
holders of record ("Bondholders") as of the 15th day
of the calendar month prior to the month in which a
Payment Date occurs (each, a "Record Date"). If any
Payment Date is not a business day, any payment due
thereon shall be made on the next succeeding business
day, without any accrued interest from such Payment
Date. Interest payable on any Payment Date shall
accrue on each Bond from and including the previous
Payment Date (or from and including the Closing Date
with respect to the first Payment Date) to, but
excluding, the Payment Date. Interest shall be
calculated on the basis of a 360-day year consisting
of 12 months of 30 days each.
REDEMPTION OF THE BONDS.............. Scheduled Redemptions. Principal on the Bonds will be
paid on scheduled Payment Dates pursuant to a sinking
fund (the "Sinking Fund") in amounts set forth
herein, commencing on , with respect
to the Series A Bonds, on , with
respect to the Series B Bonds and on ,
with respect to the Series C Bonds. Redemptions of
Bonds of any series pursuant to the Sinking Fund will
be made pro rata in accordance with the denominations
thereof. See "DESCRIPTION OF THE BONDS --
Distributions on the Bonds -- Scheduled Redemptions"
herein.
Redemptions at a Premium. The Bonds will be subject
to redemption on any Payment Date, at par, plus a
Make-Whole Premium (as described herein), together
with interest accrued
</TABLE>
3
<PAGE> 5
<TABLE>
<S> <C>
to the date of such redemption in part, (a) following
any economic abandonment of a Property by Kmart
during the base term of the related Lease, but not
earlier than January 1, 2004, or (b) if a Lease is
terminated due to an unpermitted use of the related
Property involving the mining or removal of oil, gas
or minerals by an unrelated third party. See
"DESCRIPTION OF THE LEASES -- Early Termination" and
"DESCRIPTION OF THE BONDS -- Distributions on the
Bonds -- Redemptions at a Premium" herein.
Redemptions at Par. The Bonds will be subject to
redemption in part on any Payment Date, at par,
together with interest accrued to the date of such
redemption, in the event that a Lease is terminated
following a casualty to or condemnation of the
related Property or in the event that a portion of
condemnation proceeds is paid to the Note Trustee
pursuant to such Lease, but such Lease is not
terminated. See "DESCRIPTION OF THE LEASES --
Condemnation and Casualty" and "DESCRIPTION OF THE
BONDS -- Distributions on the Bonds -- Redemptions at
Par" herein.
If less than all of the Bonds are to be redeemed
(other than pursuant to the Sinking Fund),
redemptions will be made pro rata in the proportion
that the aggregate principal amount of each Bond
bears to the aggregate amount of all Bonds
outstanding.
Optional Redemption. Neither the Notes nor the Bonds
are subject to redemption at the option of the Owner
Trustee or the Issuer.
SOURCE OF PAYMENT OF THE BONDS....... Payments of rent ("Rental Payments") to be made by
Kmart pursuant to the Leases on each Payment Date
will be in amounts that will be at least sufficient
to pay in full, when due, all payments of principal
of, premium, if any, and interest due on the Notes,
and are to be paid pursuant to the Collateral
Assignment (as defined herein) in immediately
available funds directly to the Bond Trustee for
distribution to the Bondholders pursuant to the Bond
Indenture. The remaining amount of each Rental
Payment shall be distributed to the Note Trustee for
distribution pursuant to the Note Indentures. In the
event that on any Payment Date, the amount actually
received by the Bond Trustee is less than the amount
necessary to provide for such payments on the Bonds,
the Bond Trustee shall only be obligated to
distribute to the Bondholders such amounts received
on such Payment Date, which shall be applied pro rata
based on the amount of interest, principal, and
premium currently payable on the Bonds. Any overdue
payments, plus accrued interest at a rate with
respect to each series of Bonds equal to 1% above the
applicable rate shown on the cover hereof, shall be
distributed to Bondholders on the day such overdue
amounts are received by the Bond Trustee. See
"DESCRIPTION OF THE BONDS -- Distributions on the
Bonds" herein. Although Rental Payments are direct
obligations of Kmart, the Bonds are not direct
obligations of and are not guaranteed by Kmart.
</TABLE>
4
<PAGE> 6
<TABLE>
<S> <C>
SECURITY............................. Security for the Bonds. The Bonds will be equally and
ratably secured by (i) a pledge (the "Pledge") by the
Issuer to the Bond Trustee of the three series of
notes (the "Series A Notes", "Series B Notes" and
"Series C Notes", and collectively, the "Notes")
relating to each Property issued on a non-recourse
basis by one of 24 trusts (the "Owner Trusts") that
were established pursuant to 24 separate but
substantially similar trust agreements (each, a
"Trust Agreement"), between the owner trustee named
therein, acting thereunder not in its individual
capacity but solely as trustee of the related Owner
Trust (in such capacity, the "Owner Trustee") and the
holder or holders of the beneficial interest in each
Owner Trust (the "Owner Participant") to finance the
sale-leaseback transactions described herein (the
"Sale-Leaseback Transactions"), (ii) a present
assignment by the Issuer to the Bond Trustee of its
rights under each Note Indenture (as defined below)
and (iii) a present assignment with respect to each
Property (each, a "Collateral Assignment") to the
Bond Trustee of all of the Note Trustee's rights and
interests in and to (a) the Leases, (b) the Mortgages
(as defined below) and (c) the Options to Lease (as
defined herein). The Series A Note, Series B Note and
Series C Note issued in respect of each Property will
have a maturity date and an interest rate
corresponding to those on the Series A Bonds, Series
B Bonds and Series C Bonds, respectively. The
aggregate principal amount of each series of Notes
with respect to all of the Properties will be the
same as the aggregate principal amount of the
corresponding series of Bonds. See "STRUCTURE OF THE
TRANSACTION", "DESCRIPTION OF THE BONDS" and
"DESCRIPTION OF THE NOTES" herein.
Security for the Notes. The Notes with respect to
each Property have been issued by the respective
Owner Trustee under 24 separate "Trust Indenture,
Assignment of Lease and Rents and Security
Agreements" (each, a "Note Indenture"), each of which
relates to an individual Property. Each Note
Indenture and each Note will be amended and restated
concurrently with the issuance of the Bonds. The Bank
of New York is acting as Note Trustee under each of
the Note Indentures (in such capacity, the "Note
Trustee"). The trust estate created by each Note
Indenture (each a "Note Trust Estate") consists
primarily of (i) a present assignment to the Note
Trustee of the Owner Trustee's rights and interests
in and to (subject to Excepted Rights and Excepted
Payments, each as defined herein) the Lease relating
to such Property, including the right to receive
payments of rent under such Lease in amounts at least
sufficient to pay in full, when due, all payments of
principal of, premium, if any, and interest due on
the Notes and of the rights of the Owner Trustee
pursuant to the related Option to Lease (each, a
"Lease Assignment") and (ii) a first-mortgage lien on
the Owner Trust's interest in the related Property
(the "Mortgage"), subject to the rights of Kmart
under the Lease of such Property. See "DESCRIPTION OF
THE NOTES -- Security" herein. Upon the occurrence of
a
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5
<PAGE> 7
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<S> <C>
Note Indenture Event of Default (as defined herein),
the Note Trustee may, pursuant to the terms of the
Note Indenture, exercise its rights with respect to
the related Note Trust Estate for the equal and
ratable benefit of all of the holders of the Notes
issued under or secured by the related Note
Indenture. So long as the Notes are subject to the
lien of the Bond Indenture, the Bond Trustee shall be
entitled to exercise all the rights, privileges and
entitlements of the Noteholders under each Note
Indenture and the Bond Trustee shall be entitled to
exercise all the rights of the Note Trustee under the
Leases, Mortgages and Options to Lease. None of the
Leases, the Notes or the Mortgages are
cross-defaulted or cross-collateralized. See
"STRUCTURE OF THE TRANSACTION" and "DESCRIPTION OF
THE PROPERTIES" herein.
The Bondholders will have no recourse against Kmart
(except pursuant to any remedies available to the
Bond Trustee and the Bondholders upon the occurrence
and continuation of a Lease Event of Default (as
herein defined)), and will have no personal recourse
against the Owner Trustees, the Owner Participant,
the Remainder Purchaser, the Note Trustee, the Bond
Trustee, the Issuer or their respective affiliates.
SALE-LEASEBACK TRANSACTION........... Each of the Owner Trusts has acquired from Kmart a
separate interest in one of 24 commercial properties
(the "Properties") consisting of either (i) a 30-year
estate-for-years interest in the land comprising one
of 22 of the Properties (collectively, the "Estate
for Years Interests") or (ii) a leasehold estate in
excess of 25 years in one of the remaining two
Properties (collectively, the "Leasehold Estates")
and, with respect to each of the Properties, the
improvements thereon. Each Owner Trust has leased its
respective Estate for Years Interest or sublet its
respective Leasehold Estate (and, in each case, the
improvements thereon) to Kmart pursuant to a net
lease (each, a "Lease") having an interim term from
December 27, 1993 to December 31, 1993, a base term
of 25 years which commenced on January 1, 1994, and
options to renew. Concurrently with the sale of the
Estate for Years Interests to the appropriate Owner
Trusts, Kmart sold a remainder interest in each such
Property, the possessory interest of which commences
upon the expiration of the related Estate for Years
Interest, to FGHK, Ltd., A Wyoming Limited Liability
Company (the "Remainder Purchaser"). Approximately
90% of the purchase price paid by each of the Owner
Trusts for its interest in the Properties was
financed by the initial holder of the Notes (the
"Initial Noteholder") pursuant to an interim
financing arrangement (the "Interim Financing") and
the balance was obtained from equity investments in
the Owner Trusts by the Owner Participant. The
Initial Noteholder will assign the Notes to the
Issuer in exchange for the proceeds from the offering
of the Bonds.
BOOK-ENTRY REGISTRATION.............. The Bonds initially will be issued in fully
registered form only, in the name of Cede & Co., as
the nominee of The Depository Trust Company ("DTC").
No person acquiring a beneficial
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C>
interest in the Bonds (a "Bond Owner") will be
entitled to receive a bond representing such Bond
Owner's interest in the Bonds, except in the event
that Definitive Bonds are issued in the limited
circumstances described herein. See "DESCRIPTION OF
THE BONDS -- Definitive Bonds" herein.
DENOMINATIONS........................ The Bonds will be issued in minimum denominations of
$1,000 and integral multiples thereof. The
denomination of each Bond signifies a Bondholder's
pro rata share of the aggregate principal amount of
such series of Bonds. See "DESCRIPTION OF THE BONDS
-- General" herein.
USE OF PROCEEDS...................... The proceeds of the sale of the Bonds (the
"Proceeds") will be used by the Issuer as the
purchase price for the Notes to be acquired from the
Initial Noteholder. The offering of the Bonds is
intended to enable the Owner Trusts to refinance
their purchase of their respective interests in the
Properties from Kmart, including certain costs and
expenses associated therewith. The proceeds from the
sale of the Properties, including the sale of the
residual interests, have been used by Kmart for
general corporate purposes. See "STRUCTURE OF THE
TRANSACTION" and "USE OF PROCEEDS" herein.
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS..................... Elections will be made to treat the three separate
pools of the assets held subject to the Bond
Indenture (the "Asset Pools"), consisting principally
of the Series A Notes, Series B Notes, Series C
Notes, the Pledge, the Note Assignment and the
Collateral Assignments as three separate real estate
mortgage investment conduits (the "Pool A REMIC", the
"Pool B REMIC" and the "Pool C REMIC", respectively,
and collectively, the "REMICs") for federal income
tax purposes. As described more fully herein, the
Series A Bonds, Series B Bonds and Series C Bonds
will constitute the "regular interests" in the Pool A
REMIC, Pool B REMIC and Pool C REMIC, respectively,
and the Secured Lease Bonds, Series AR, Series BR and
Series CR (collectively, the "Residual Bonds"), which
are not offered hereby, will constitute the "residual
interests" in the respective REMICs. See "CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS" herein.
The Bonds will be taxable obligations under the
Internal Revenue Code of 1986, as amended (the
"Code"). The amount of income recognized in any
period by the original purchaser of a Bond will equal
the amount of interest accrued on such Bond in
accordance with its terms. Bond Owners must use the
accrual method of accounting with respect to their
income on the Bonds, even if they otherwise use the
cash method.
The Bond Trustee initially will act as the tax
administrator for the Bonds (the "Tax
Administrator"), as described in "CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS" herein, although the Bond
Trustee may appoint an agent to act as Tax
Administrator at a future date.
</TABLE>
7
<PAGE> 9
<TABLE>
<S> <C>
In general, as a result of the qualification of each
Asset Pool as a REMIC, Bonds held by a mutual savings
bank or a domestic building and loan association
(each, a "Thrift Institution") will constitute
"qualifying real property loans" within the meaning
of Section 593(d)(1) of the Code. In addition, Bonds
held by a real estate investment trust (a "REIT")
generally will constitute "real estate assets" within
the meaning of Code Section 856(c)(5)(A), and
interest on the Bonds generally will be considered
"interest on obligations secured by mortgages on real
property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B). However, Bonds
held by a regulated investment company (a "RIC") will
not constitute "Government securities" within the
meaning of Code Section 851(b)(4)(A)(i), and Bonds
will not constitute assets set forth in Code Section
7701(a)(19)(C) for domestic building and loan
associations.
For further information regarding the federal income
tax consequences of investing in each series of
Bonds, see "CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS" herein.
ERISA CONSIDERATIONS................. Subject to certain conditions specified herein, the
Bonds may be purchased by employee benefit plans that
are subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
Fiduciaries of employee benefit plans subject to
ERISA or Section 4975 of the Code should carefully
review with their legal advisors whether the purchase
or holding of the Bonds could give rise to a
transaction prohibited or otherwise not permissible
under ERISA or the Code. See "ERISA CONSIDERATIONS"
herein.
</TABLE>
8
<PAGE> 10
KMART
BACKGROUND
Kmart Corporation ("Kmart" or "Company") is one of the world's largest mass
merchandise retailers. The dominant portion of Kmart's business consists of the
Kmart Group which as of January 26, 1994 operated a chain of 2,337 Kmart
discount stores with locations in each of the 50 United States and Puerto Rico
including 19 Super Kmart Centers, all in the United States. The Kmart Group's
international operations consist primarily of 127 Kmart stores in Canada and 13
department stores located in the Czech Republic and Slovakia as of January 26,
1994. The Central European stores were acquired in mid-1992 and represent
Kmart's entry into that market. Kmart is developing advanced distribution
methods and merchandising skills to modernize, refurbish and streamline
operations in the two Central European countries. As part of its international
expansion strategy, the Kmart Group has formed joint ventures in Mexico and
Singapore and expects to open stores in those countries in 1994. Kmart also
holds significant equity interests in Coles Myer Ltd., Australia's largest
retailer, and substantially all of the Meldisco subsidiaries of Melville
Corporation, which operate the footwear departments in domestic Kmart stores.
The Kmart Group also includes the operations of PayLess Drug Stores Northwest,
Inc., which is subject to a definitive sale agreement that is anticipated to be
completed by the end of the first quarter of 1994 and PACE Membership Warehouse,
Inc., substantially all of the assets of which were sold in January 1994.
Kmart's Specialty Retail Group consists of the Borders-Walden Group, the
Builders Square Group, the OfficeMax Group and The Sports Authority Group. The
Borders-Walden Group is a leading book retailer in the United States, and is
comprised of the Company's Borders, Inc. ("Borders") and Walden Book Company,
Inc. ("Walden") subsidiaries. As of January 23, 1994, Borders operated 44 large
format superstores in 21 states and the District of Columbia, each of which is
designed to be the premier book retailer in its market, and Walden, which is the
largest operator of mall-based bookstores in the United States, operated 1,159
book stores in 50 states and the District of Columbia. The Builders Square Group
is a leading specialty retailer of home improvements and home decor products and
services in the United States, and is comprised of the Company's Builders
Square, Inc. subsidiary. It operated 177 stores in 26 states and Puerto Rico at
January 23, 1994. The OfficeMax Group is one of the largest operators of
high-volume, deep discount office products superstores in the United States, and
is comprised of the Company's OfficeMax, Inc. subsidiary. It operated 328
superstores in 38 states as of January 23, 1994. The Sports Authority Group is
one of the largest operators of large format sporting goods stores in the United
States in terms of both sales and number of stores and is also one of the
largest full-line sporting goods retailers in the United States in terms of
sales, and is comprised of the Company's The Sports Authority, Inc. subsidiary.
It operated 80 sporting goods megastores at January 23, 1994.
Kmart was incorporated under the laws of the State of Michigan on March 9,
1916. The principal executive offices of Kmart are located at 3100 West Big
Beaver Road, Troy, Michigan 48084, and its telephone number is (810) 643-1000.
SPECIALTY RETAIL STOCK PROPOSAL
Kmart intends to submit for approval to its stockholders at the Annual
Meeting of Stockholders to be held on May 24, 1994, a proposal to amend its
Restated Articles of Incorporation to authorize its Board of Directors to issue
any of four new series of common stock (collectively, the "Specialty Retail
Stock"). The amendment would, among other things, increase the number of
authorized shares of common stock from 1.5 billion to 3.0 billion; redesignate
1.5 billion shares of common stock as Kmart Group Common Stock ("Kmart Stock");
and provide for the issuance of common stock in series by resolution of the
Board, with 1.5 billion shares to be available for designation by the Board as
additional shares of Kmart Stock and/or any of the four new series of Specialty
Retail Stock. While each series of Specialty Retail Stock would constitute
common stock of Kmart, each is intended to reflect the separate performance of
the business of the Borders-Walden Group, the Builders Square Group, the
OfficeMax Group and The Sports Authority Group.
If the stockholders approve the Specialty Retail Stock proposal, the
Company currently intends, subject to prevailing market and other conditions, to
offer shares of each series of Specialty Retail Stock for cash in
9
<PAGE> 11
separate public offerings. It is currently contemplated that the Company would
offer to the public shares of each series of Specialty Retail Stock that would
be intended to represent approximately 20 to 30 percent of the equity value of
the Company attributed to the relevant specialty retail business as determined
by the Board at the time of such offering. The Board reserves the right not to
proceed with any or all of the offerings if it determines that consummation of
any such offering is not in the best interest of the Company.
FINANCIAL INFORMATION
In January 1994, Kmart announced a one-time charge to fourth quarter 1993
earnings of $1.35 billion before taxes. Net of taxes, the charge was $862
million. The provision includes anticipated costs associated with Kmart stores
which will be closed, relocated, enlarged or refurbished in the United States
and Canada as well as the conversion of substantially all Builders Square stores
to the new Builders Square II format by refurbishment and enlargement or
relocation and the closing of a number of underperforming Walden stores.
The provision for restructuring will include the expenses to be incurred in
connection with stores that will be closed, relocated, enlarged or refurbished,
as well as other non-recurring charges. About 67% of the pretax restructuring
provision consists of costs associated with United States and Canadian Kmart
stores. Approximately 17% of the restructuring provision is for costs associated
with Builders Square stores and about 16% is for costs associated with Walden
stores.
In December 1993, Kmart entered into a definitive agreement to sell Kmart's
PayLess Drug Stores Northwest, Inc. subsidiary to TCH Corporation, the parent
company of Thrifty Corporation. Under the terms of the agreement, TCH will
provide the Kmart Group with consideration consisting of $592 million of cash,
$100 million in subordinated debt securities and common stock representing 47%
of the equity of TCH. It is anticipated that the transaction will be completed
by the end of the first quarter of 1994.
In November 1993, PACE Membership Warehouse, Inc. entered into an agreement
to sell 93 of its warehouses to Sam's Club, a division of WalMart Stores, Inc.
Included in the sale are all assets and lease obligations of the 93 warehouse
locations being sold as well as virtually all inventory and membership files in
the units not included in the transaction. The sale was completed in January
1994.
PayLess and PACE are presented as discontinued operations in the
consolidated financial statements and accompanying footnotes. An after-tax loss
of $503 million was recorded for the disposal of these discontinued businesses.
As of March 11, 1994, Moody's Investors Service, Inc., ("Moody's"),
Standard and Poor's Ratings Group ("S&P") and Duff & Phelps Credit Rating Co.
("D&P") assigned the ratings of "A3", "A" and "A", respectively, to the senior
unsecured debt of Kmart. Both S&P and D&P have informed Kmart that they have
placed Kmart on their respective "credit watch" lists. There can be no assurance
that the ratings set forth above may not be changed by the respective rating
agency at any time.
10
<PAGE> 12
KMART CORPORATION
SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
39 WEEKS ENDED
---------------------------
OCTOBER 28, OCTOBER 27,
1988 1989(1) 1990 1991 1992 1992 1993
------- ------- ------- ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations
Sales........................... $25,947 $27,670 $28,133 $29,042 $31,031 $21,588 $23,889
Cost of merchandise sold........ 18,920 20,310 20,614 21,243 22,800 15,940 17,762
Selling, general and
administrative expenses....... 5,877 6,277 6,435 6,603 6,875 4,994 5,567
Interest expense -- net......... 312 353 384 384 414 306 369
Income from continuing retail
operations before income
taxes......................... 1,185 444 1,070 1,189 1,327 569 439
Net income from continuing
retail operations............. 768 282 712 789 882 381 287
Ratio of earnings to fixed
charges(2).................... 3.5 1.8 2.9 3.0 3.0 (3) (3)
Balance Sheet (at end of period):
Working capital................. $ 3,654 $ 3,685 $ 3,519 $ 4,682 $ 5,014 $ 4,387 $ 3,918
Merchandise inventories......... 5,671 6,933 6,891 7,546 8,752 9,638 10,517
Total assets.................... 12,126 13,145 13,899 15,999 18,931 19,477 21,604
Long-term debt.................. 1,358 1,480 1,701 2,287 3,237 2,802 2,757
Capital leases.................. 1,588 1,549 1,598 1,638 1,698 1,642 1,732
Shareholders' equity.............. 5,009 4,972 5,384 6,891 7,536 6,991 7,398
</TABLE>
- -------------------------
(1) Results of operations for 1989 include a pre-tax provision of $640 million
for restructuring of Kmart stores and other charges.
(2) In computing the ratio of earnings to fixed charges, earnings consist of
income from continuing retail operations, less undistributed equity income
of unconsolidated affiliated retail companies, plus estimated income taxes
and fixed charges (excluding capitalized interest). Fixed charges consist
primarily of interest expense, capitalized interest and that portion of
operating rentals representative of the interest factor.
(3) Due to the seasonality of Kmart's business, the ratio of earnings to fixed
charges for the interim periods computed as described in (2) above using 52
weeks ended October 28, 1992, and October 27, 1993, was 2.9 and 2.6,
respectively.
YEAR-END 1993 FINANCIAL RESULTS
Results for the fiscal years ended January 27, 1993 and January 26, 1994
are set forth below:
<TABLE>
<CAPTION>
(MILLIONS) 1992 1993
- ------------------------------------------------------------------------ -------- --------
<S> <C> <C>
Sales................................................................... $ 31,031 $ 34,156
Cost of merchandise sold................................................ 22,800 25,646
Selling, general and administrative expenses............................ 6,875 7,636
Restructuring of Kmart stores and other charges......................... -- 1,348
Interest expense -- net................................................. 414 477
Income (loss) from continuing retail operations before income taxes..... 1,327 (550)
Net income (loss) from continuing retail operations..................... 882 (328)
</TABLE>
Price Waterhouse has audited Kmart's consolidated financial statements for
the year ended January 26, 1994. However, Kmart has not publicly issued such
consolidated financial statements; and, therefore, Price Waterhouse has not
issued their report with respect thereto.
11
<PAGE> 13
For the 1993 fiscal year ended January 26, 1994, net income from continuing
retail operations amounted to $534 million, or $1.15 per share, exclusive of a
pretax provision of $1.35 billion ($862 million after-tax) to cover expenses
substantially associated with the restructuring of the U.S. Kmart stores
division, certain specialty retail businesses and Kmart Canada. Net income from
continuing retail operations in 1993 was also before a net operating loss ($81
million) from the discontinued PACE Membership Warehouse and soon-to-be-divested
PayLess Drug Store businesses, losses ($503 million) sustained in connection
with the discontinuance of PACE and the anticipated sale of PayLess Drug Stores,
extraordinary items ($28 million) and the effects of accounting changes ($34
million). Net income from continuing retail operations in the prior year was
$882 million, or $1.93 per share, as restated to exclude the discontinued PACE
and PayLess Drug Store businesses. After the restructuring provision and all of
the other non-recurring items, a loss of $974 million, or $2.15 per share, was
sustained in 1993, in contrast to earnings of $941 million, or $2.06 per share,
in the fiscal year ended January 27, 1993.
Sales in 1993 were $34.16 billion, an increase of 10.1% from the $31.03
billion in the preceding year, as restated to exclude the PACE and PayLess Drug
Store businesses.
Exclusive of the restructuring provision and the other non-recurring items,
net income from continuing retail operations for the fourth quarter of 1993
amounted to $247 million, or $0.53 per share, compared with the fourth quarter
of 1992 of $501 million, or $1.07 per share, as restated to exclude discontinued
operations. After the restructuring provision and the other non-recurring items,
a net loss of $1.19 billion, or $2.61 per share, was sustained in the 1993
fourth quarter, in contrast to a fourth-quarter profit in the prior year of $535
million, or $1.15 per share. Sales rose 8.7% to $10.27 billion from $9.44
billion in the same 13-week period of 1992, exclusive of the PACE and PayLess
Drug Store businesses.
12
<PAGE> 14
DIAGRAM OF TRANSACTION STRUCTURE
Footnotes to Diagram:
(A) On December 27, 1993, each of the Owner Trusts acquired an interest in one
of the Properties from Kmart and leased such Property back to Kmart. Kmart
received the entire purchase price for its interest in each Property from
the appropriate Owner Trustee.
(B) On December 27, 1993, Kmart sold a remainder interest in each of the
Properties subject to the Estate for Years Interests, commencing upon the
expiration of the 30-year estate-for-years interests, to the Remainder
Purchaser in exchange for a cash payment.
(C) On December 27, 1993, the Remainder Purchaser granted each Owner Trustee an
option to lease the land underlying the related Property commencing on the
expiration of the 30-year estate-for-years interests in exchange for a cash
payment.
(D) On December 27, 1993, each Owner Trustee issued three Notes to the Initial
Noteholder pursuant to each Note Indenture, evidencing the interim
financing of a portion of the purchase price for the related Property.
(E) As security for the three Notes relating to a particular Property, on
December 27, 1993, the appropriate Owner Trustee, among other things,
executed and delivered a Mortgage on such Property to the Note Trustee and
assigned certain of its rights under the related Lease on such Property,
including its rights to receive Rental Payments, and the Option to Lease to
the Note Trustee.
(F) On the Closing Date, the Initial Noteholder will assign the Notes to the
Issuer and each of the Notes and Note Indentures will be amended and
restated.
(G) On the Closing Date, the Issuer will issue the Bonds to the Bondholders
pursuant to the Bond Indenture, in exchange for the proceeds therefrom,
which will be paid to the Initial Noteholder for the Notes.
(H) As security for the Bonds, the Bond Trustee, on the Closing Date, will
receive from the Issuer a pledge of the Notes and a present assignment of
its interest in, to and under the Note Indentures.
(I) As security for the Bonds, on the Closing Date, the Bond Trustee will
receive from the Note Trustee assignments of its rights and interests in,
to and under (i) the Leases, (ii) the Mortgages and (iii) the Options to
Lease.
(J) On each Payment Date, Kmart will make Rental Payments directly to the Bond
Trustee.
(K) On each Payment Date, the Bond Trustee shall distribute all required
payments of principal of, premium, if any, and interest on the Notes to the
Bondholders.
(L) On each Payment Date, the Bond Trustee shall transfer to the Note Trustee
and the Note Trustee shall distribute to the Owner Trustees amounts
constituting any remaining amount of Rental Payments not otherwise
distributed to the Bondholders in payment of principal of, premium, if any,
and interest on the Notes.
See "STRUCTURE OF THE TRANSACTION" herein for a more detailed description
of the transaction set forth in the foregoing diagram.
13
<PAGE> 15
STRUCTURE OF THE TRANSACTION
On December 27, 1993, each of the 24 Owner Trusts, the beneficiary of each
of which is the Owner Participant, acquired from Kmart an interest in one of the
Properties, consisting of either (i) a Leasehold Estate or (ii) an Estate for
Years Interest, in each case including the improvements on such Property, for an
aggregate purchase price of approximately $191,000,000. Each Owner Trust
immediately leased its Property to Kmart, pursuant to a Lease which had an
interim term from December 27, 1993 until December 31, 1993, a base term of 25
years commencing on January 1, 1994, and options to renew. The Leases are not
cross-defaulted. At the same time as the sale of the Estate for Years Interests,
Kmart sold a remainder interest in the land underlying the Estate for Years
Interests, commencing on the expiration of the estates for years, to the
Remainder Purchaser. In consideration of a cash payment, the Remainder Purchaser
granted the respective Owner Trusts options (the "Options to Lease") to lease
the land underlying its Property from the Remainder Purchaser for additional
terms commencing on the expiration of the Estate for Years Interests. The
transactions set forth in this paragraph are collectively referred to herein as
the Sale-Leaseback Transaction.
Each Owner Trust obtained approximately 10% of the purchase price for its
interests in the Properties from an equity investment by the Owner Participant,
and the remaining amount was financed by the Initial Noteholder pursuant to the
Interim Financing. As security for the Interim Financing, each Owner Trust
issued three Notes with respect to each Property in favor of the Initial
Noteholder. The Notes with respect to each Property were issued pursuant to, and
secured by, a Note Indenture. Each Owner Trustee also granted a Mortgage on each
Property to the Note Trustee for the benefit of the Noteholders. The Note Trust
Estate of each Note Indenture consists primarily of (i) the Mortgage with
respect to the related Property and (ii) the Lease Assignment including the
right to receive rents on the related Lease. Each Note Indenture and Mortgage
provides for recourse only with respect to the related Note Trust Estate. None
of the Notes, the Note Indentures or the Mortgages are cross-defaulted or
cross-collateralized.
On the Closing Date, the Issuer will acquire the Notes from the Initial
Noteholder in exchange for the proceeds from the offering of the Bonds. Each
Lease will be amended, and each Note Indenture and each Note will be amended and
restated concurrently with the issuance of the Bonds to remove any terms therein
specific to the Interim Financing and to provide for the offering of the Bonds.
See "DESCRIPTION OF THE LEASES" and "DESCRIPTION OF THE NOTES" herein.
The Issuer will issue the Bonds on a non-recourse basis pursuant to, and
secured by, the Bond Indenture. The trust estate of the Bond Indenture will
consist primarily of (i) the Pledge, (ii) the Note Assignment and (iii) the
Collateral Assignments. The Series A Note, Series B Note and Series C Note
issued in respect of each Property will have a maturity date and an interest
rate corresponding to those on the Series A Bonds, Series B Bonds and Series C
Bonds, respectively. The aggregate principal amount of each series of Notes with
respect to all of the Properties will be the same as the aggregate principal
amount of the corresponding series of Bonds.
The Owner Trusts have agreed not to create liens with respect to their
respective interests in the Properties, except for liens expressly permitted by
the Note Indentures, the Mortgages or the Leases (including certain easements
which do not materially reduce the value of the Properties). The interests of
the Remainder Purchaser in the Properties that are subject to the Estate for
Years Interests are not subject to the liens of the Note Indentures and the
Mortgages. For information regarding the Properties, see "DESCRIPTION OF THE
PROPERTIES" herein.
The Rental Payments payable by Kmart under the Leases will be in amounts
that will be at least sufficient to pay in full, when due, all required payments
of principal of, premium, if any, and interest due on the Notes, and shall be
paid to the Bond Trustee in immediately available funds on each Payment Date. On
each such date, upon receipt by the Bond Trustee of the Rental Payments from
Kmart, the Bond Trustee shall (i) distribute funds equal to the amount of all
payments of principal of, premium, if any, and interest due on the Notes to the
Bondholders, and (ii) transfer any amounts in excess of amounts distributed to
the Bondholders pursuant to clause (i) to the Note Trustee for distribution to
the appropriate Owner Trustee as set forth in the Note Indentures. See
"DESCRIPTION OF THE NOTES -- Security" herein. The Bonds
14
<PAGE> 16
will be payable solely from amounts paid under the Leases and from amounts
realized from the exercise of remedies under the Note Indentures, the Mortgages
or the Leases, and will be without recourse to the general credit of Kmart, the
Issuer, the Owner Trustees or the Owner Participant.
A more detailed description of the financing arrangements and the
Properties is set forth below under the headings "DESCRIPTION OF THE
PROPERTIES", "DESCRIPTION OF THE LEASES", "DESCRIPTION OF THE BONDS" and
"DESCRIPTION OF THE NOTES" herein. The statements appearing in this section and
under those headings are subject to the detailed provisions of the documents
being described, the respective copies or forms of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. Such
documents are incorporated by reference herein and references to such documents
are qualified in their entirety by the provisions of such documents.
USE OF PROCEEDS
The Proceeds will be used by the Issuer as the purchase price for the Notes
to be acquired from the Initial Noteholder. The offering of the Bonds is
intended to enable the Owner Trusts to refinance their purchase of their
respective interests in each of the Properties from Kmart, including certain
costs and expenses associated therewith. The proceeds from the sale of the
Properties, including the sale of the remainder interests, have been used by
Kmart for general corporate purposes. See "STRUCTURE OF THE TRANSACTION" herein.
DESCRIPTION OF THE PROPERTIES
The Properties consist of 19 Kmart store locations (including two
combination general-merchandise and grocery Super Kmart Centers), one apparel
warehouse and four Builders Square store locations. On December 27, 1993, Kmart
assigned its rights as lessee under the four leases relating to the Builders
Square
15
<PAGE> 17
locations to its Builders Square, Inc. subsidiary. Certain information regarding
each of the Properties is set forth in the following table:
<TABLE>
<CAPTION>
FACILITY SIZE LOT SIZE
KMART STORE LOCATIONS (SQ. FT.) (ACRES) OPENING DATE
- ---------------------------- ------------- ------------ --------------
<S> <C> <C> <C>
Crescent City, CA........... 91,305 6.82 April 1993
Folsom, CA.................. 108,255 9.47 April 1993
Watertown, NY............... 120,727 3.57 April 1993
Galesburg, IL............... 94,970 2.43 November 1992
Kenai, AK................... 146,759 10.70 July 1993
Fairbanks, AK............... 146,300 11.80 October 1993
Marina, CA.................. 90,854 7.77 October 1993
Santee, CA.................. 104,551 8.73 November 1993
San Diego, CA............... 107,210 Ground Lease August 1993
Moorpark, CA................ 108,830 Ground Lease November 1993
Manteca, CA................. 107,489 7.95 May 1993
Fairlea, WV................. 90,933 9.28 May 1993
Sunrise, FL................. 108,408 9.97 November 1993
Perris, CA.................. 116,955 11.53 November 1993
Exmore, VA.................. 94,900 13.64 November 1993
Tustin, CA.................. 108,413 9.10 November 1993
Warwick, RI................. 113,113 13.79 November 1993
</TABLE>
<TABLE>
<CAPTION>
FACILITY SIZE LOT SIZE
SUPER KMART CENTER LOCATIONS (SQ. FT.) (ACRES) OPENING DATE
- ---------------------------- ------------- ------------ --------------
<S> <C> <C> <C>
Lorain, OH.................. 193,193 28.32 October 1993
Yuma, AZ.................... 191,271 21.58 November 1993
</TABLE>
<TABLE>
<CAPTION>
FACILITY SIZE LOT SIZE
BUILDERS SQUARE LOCATIONS (SQ. FT.) (ACRES) OPENING DATE
- ---------------------------- ------------- ------------ --------------
<S> <C> <C> <C>
Fort Myers, FL.............. 107,400 12.29 July 1993
San Antonio, TX............. 106,881 10.47 May 1993
Tulsa, OK................... 80,229 8.62 October 1986
Austin, TX.................. 108,028 10.08 February 1993
</TABLE>
<TABLE>
<CAPTION>
FACILITY SIZE LOT SIZE
APPAREL WAREHOUSE LOCATION (SQ. FT.) (ACRES) OPENING DATE
- ---------------------------- ------------- ------------ --------------
<S> <C> <C> <C>
Forest Park, GA............. 227,401 19.79 October 1992
</TABLE>
APPRAISALS
All of the Properties were appraised between May 1993 and December 1993 at
the request of the Owner Participant by Marshall and Stevens Incorporated, an
independent appraiser, in accordance with the requirements of the Code of
Professional Ethics and Standards of Professional Conduct of the Appraisal
Institute and the Appraisal Foundation's Uniform Standards of Professional
Appraisal Practice. As a result of its appraisals, Marshall and Stevens
Incorporated has determined that, as of the date of the appraisal thereof, the
fair market value of each Property, on the open market and as unencumbered by
the related Lease, is not less than the purchase price thereof, except with
respect to the Properties located in Justin, California, Crescent City,
California and Forest Park, Georgia, the amount of the purchase prices financed
by the proceeds of the Notes and Bonds of which exceed the respective fair
market values of such Properties as unencumbered. With respect to those three
Properties, Marshall and Stevens Incorporated has also determined that, as of
the appraisal date thereof, the fair market value of each such Property as
encumbered by the related Lease is not less than the amount of the purchase
price financed by the proceeds of the Notes and Bonds of each such Property. The
fair market values of the Justin, California, Crescent City and Forest
16
<PAGE> 18
None of Kmart, the Issuer, the Underwriter, the Note Trustee or the Bond
Trustee or any other entity has prepared or obtained separate independent
appraisals or reappraisals. None of Kmart, the Issuer, the Underwriter, the Note
Trustee or the Bond Trustee makes any representation as to the fair market value
of any of the Properties. Moreover, there can be no assurance that other
appraisers would not arrive at materially different conclusions as to the fair
market value of the Properties.
LEASEHOLD ESTATES
The Properties in Moorpark and San Diego, California are subject to
unsubordinated ground leases. Under the related Leases, Kmart has agreed during
the term of the Lease to pay the rent due under the applicable ground leases and
to comply with all obligations of the ground lessee thereunder.
ENVIRONMENTAL MATTERS
Phase I or other environmental assessment reports were prepared during 1993
for each Property. The reports disclosed no material environmental conditions
which would materially interfere with the intended uses of the Properties. With
respect to the Properties located in Crescent City, California and Fort Myers,
Florida, state regulatory authorities have required certain remediation actions
and continued monitoring, which activities are being undertaken by the
appropriate party. It is not expected that the environmental matters referred to
in the previous sentence will have a material adverse effect on Kmart's ability
to make Rental Payments. Kmart will indemnify, among other parties, the Owner
Trusts, the Note Trustee and the Bond Trustee for the benefit of the Bondholders
for any past or present environmental liability or any environmental liability
arising during the term of the Leases with respect to the Properties.
Kmart agreed in the Leases that, except for those items such as batteries
and oil typically and customarily sold in Kmart stores or its subsidiaries'
stores, as the case may be, in the ordinary course of business in compliance
with applicable environmental laws, it would not cause or permit any hazardous
materials to exist on or to be used on the Properties during the term of the
Leases. Kmart will indemnify the Owner Trusts, the Note Trustee and the Bond
Trustee, among other parties, from any liability arising from the presence of
hazardous materials that pre-existed the Lease or from any use of the Properties
arising during the term of the Lease unless caused by the gross negligence or
willful misconduct of the indemnified parties. Kmart made covenants in the
Leases that it shall comply in all material respects with applicable
environmental laws affecting each Property or the use, modification, maintenance
or operation thereof, and shall have sole responsibility for all expenses
(whether legal, professional or arising from investigation) associated with such
compliance, and shall further comply in all respects with environmental laws
where non-compliance could involve an environmental claim in excess of $100,000
or where such non-compliance would materially interfere with the use or
operation of the Property.
DESCRIPTION OF THE LEASES
The statements under this caption are summaries of the terms of the Leases
and do not purport to be complete. The summaries make use of terms defined in
and are qualified in their entirety by reference to all of the provisions of
each Lease, the form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
TERMS AND RENTALS
Each Owner Trust has leased its respective Property to Kmart pursuant to a
Lease for an initial term from December 27, 1993 until December 31, 1993, and a
base term of 25 years which commenced on January 1, 1994. Kmart will have the
option to extend a Lease relating to any Estate for Years Interest for at least
six consecutive terms of five years each and the option to extend a Lease
relating to any Leasehold Estate for a term of at least 10 years beyond the
maturity date of the Notes and Bonds. Because the Bonds are scheduled to be
retired during the base term of the Lease, any such extensions should not affect
the interests of the Bondholders. So long as no Lease Event of Default exists
with respect to an individual Lease, Kmart, as lessee thereunder, will be
entitled to undisturbed possession of the related Property, even if there exists
an
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Event of Default under the related Mortgage or Note Indenture or under the Bond
Indenture. Rental payments are required to be paid by Kmart under the Leases in
immediately available funds on each January 1 and July 1, commencing on January
1, 1994. On each Payment Date, commencing on July 1, 1994, the aggregate amount
of Rental Payments payable under the Leases will be at least equal to the
aggregate scheduled amount of principal of, premium, if any, and accrued
interest payable on the outstanding Notes that are due and payable on such date.
See "STRUCTURE OF THE TRANSACTION" herein. Kmart is obligated under each Lease
to pay interest on any late payments of rent which shall accrue at a rate equal
to the sum of 1% plus the weighted average of the interest rates of the Notes
from the relevant Payment Date to the date such payments are actually received
by the Bond Trustee (the "Default Rate").
NET LEASES; NO SET-OFF
Each Lease is a net Lease and Kmart is obligated to pay thereunder, on an
absolutely net basis, all Rental Payments without diminution for any reason,
except to the extent a Lease is terminated, as described below. Additionally,
Kmart will pay all taxes (including ad valorem real estate taxes) and
assessments, regardless of how named or denominated, relating to the Properties
together with every fine, penalty, interest or cost which may be added for
non-payment or late payment thereof, and all utility and other charges incurred
in the operation of the Properties, and Kmart shall obtain, and use its
reasonable efforts to maintain, utilities services therefor.
Each Lease also provides that, it shall not be terminable by Kmart
thereunder, except under limited circumstances as described herein, nor shall
Kmart be entitled to any abatement, reduction, set-off, counterclaim, defense or
deduction with respect to any payment of rent or other obligation under any
Lease, by reason of: (i) any damage to or destruction of a leased Property; (ii)
any taking of a Property or any part thereof by eminent domain or otherwise;
(iii) any prohibition, limitation, restriction, interference with or prevention
of Kmart's use, occupancy or enjoyment of all or any part of a Property; (iv)
any default by an Owner Trust under a Lease; (v) any eviction by a holder of
paramount title or otherwise; (vi) any purported merger of estates resulting
from Kmart's acquisition of all or any part of a Property; or (vii) any other
cause whether similar or dissimilar to the foregoing, any present or future law
to the contrary notwithstanding.
REPAIRS AND MAINTENANCE
Kmart shall, at its expense and on a timely basis, maintain each Property
in good repair and condition, ordinary wear and tear excepted, and will make
structural and non-structural, foreseen and unforeseen changes, replacements and
repairs which may be required to keep the Property in good repair and condition
and at a standard applicable to similar properties in the marketplace and those
owned or leased by Kmart. In no event are the Owner Trusts required to repair,
rebuild or maintain any of the Properties. While the Leases are net Leases
requiring Kmart to pay taxes, maintenance and operating expenses during the
period in which Kmart leases a Property, Kmart has not, under any of the Leases,
covenanted to operate a business at the Properties for the term of the Leases
and Kmart may, unless otherwise prohibited by law or by other agreement binding
on the Property, cease actual operations at any Property. An Owner Trust may
grant easements, release existing easements, make dedications, execute
annexation petitions and amend covenants and restrictions affecting a Property
that are requested by Kmart in respect of any Property that do not materially
impair such Property's useful life or materially reduce its fair market value.
ALTERATIONS AND IMPROVEMENTS
Kmart, at its expense, may add to, or alter, existing improvements on any
Property, which improvements shall be subject to the lien of the related
Mortgage and Note Indenture, provided that the fair market value or useful life
of such Property shall not be adversely affected thereby and that the work shall
be done in a first-class, workmanlike manner in compliance with applicable laws.
All such additional improvements shall be and remain the property of the
respective Owner Trust and shall be subject to all of the terms and provisions
of the applicable Lease. All inventory, trade fixtures, machinery, equipment and
other personal property installed at the expense of Kmart shall remain the
property of Kmart, not subject to the lien of the related Mortgage or
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Note Indenture, and shall be removed from the premises by Kmart, at its expense,
at the expiration of the term of the Lease.
LIENS
Kmart, as lessee, covenants that it shall not, during the term of any
Lease, directly or indirectly create, incur, assume, suffer or permit any lien
on or with respect to the related Property or any part thereof, any rent, title
thereto or interest therein, up to and including the date of the end of such
Lease term, other than Permitted Liens. "Permitted Liens" are: (i) liens
representing the respective rights and interests of Kmart, the Owner Trusts, the
Owner Participant, the Remainder Purchaser, the Bond Trustee, the Note Trustee,
the Issuer, each REMIC and any holder of a lien for the benefit of the
Bondholders (ii) certain liens caused or permitted to be incurred by the Owner
Trusts or the Remainder Purchaser; (iii) liens for taxes and assessments that
either are not yet due and payable or are being contested in good faith and by
appropriate proceedings diligently conducted, so long as such proceedings do not
(a) subject the Property to foreclosure, forfeiture or loss or result in the
sale of the Property, (b) materially interfere with the use, possession or
disposition of the Property, (c) interfere with the payment of Rental Payments
or (d) involve any risk of loss of the priority of the lien of the Note
Indenture relating thereto; (iv) materialmen's, mechanics', workers',
repairmen's, employees' or other like liens arising after the date of the Lease
in the ordinary course of business for amounts either not yet due or being
contested in good faith and by appropriate proceedings so long as such
proceedings shall not involve any risk of the sale, forfeiture or loss of any
part of the Property and shall not materially interfere with the use, occupancy
or disposition of the Property or interfere with the payment of Rental Payments;
(v) liens arising after the date of the Lease out of judgments or awards with
respect to which at the time an appeal or proceeding for review is being
prosecuted diligently and in good faith and that either have been bonded to the
satisfaction of the Owner Trusts and the Note Trustee or the enforcement of
which has been continuously stayed pending such appeal or review; (vi)
easements, rights-of-way, reservations, servitudes and rights of others against
the Property which (a) are listed as Permitted Exceptions in the Agreement for
Sale of Real Estate (the "Sale Agreement") dated as of the date of the Leases or
(b) are granted pursuant to the specific provisions of such Lease; and (vii)
assignments, leases and subleases expressly permitted by the Operative Documents
(as defined in the Note Indentures).
Kmart shall promptly, but no later than 30 days after the attachment
thereof, at its own expense, discharge, eliminate or bond any lien that is not a
Permitted Lien in a manner satisfactory to the Owner Trusts. In the event such
lien is not so discharged, eliminated or bonded, the Owner Trusts may pay and
discharge any such lien, and Kmart shall reimburse the Owner Trusts upon demand
for the amount so paid together with interest thereon at the Default Rate.
ASSIGNMENT OR SUBLEASE; USE
Kmart may assign all or sublease all or any part of its leasehold interest
in the Properties without the prior written consent of the respective Owner
Trust. Kmart shall provide notice to the respective Owner Trust of such
assignment or sublease within 15 days prior to the effective date thereof. No
such assignment or sublease shall release Kmart from its obligations and
liabilities under the Lease. Kmart's liability under any Lease shall continue
notwithstanding the rejection of such Lease as to the assignee or sublease as to
the sublessee pursuant to Title 11 of the United States Code (the "Bankruptcy
Code"). In the event Kmart assigns the Lease and it is thereafter rejected in a
bankruptcy or similar proceeding, a new lease identical to the rejected Lease
shall be reinstituted as between the appropriate Owner Trustee and Kmart without
further act by either party. Kmart is prohibited from mortgaging or otherwise
encumbering its interest under the Leases.
Each Property may be used for any lawful purpose; provided that no use of
any Property may be made by Kmart or an assignee or sublessee of Kmart that
would: (i) be a public nuisance; (ii) cause a Property to become a "tax-exempt
use property" within the meaning of Section 168(h) of the Code, or any successor
statute thereto, or to become a "tax-exempt bond financed property" within the
meaning of Section 168(g)(5) of the Code; (iii) void any certificate of
occupancy required for such Property; (iv) cancel or make it impossible to
obtain the issuance of any insurance policy required for such Property by the
related Lease; (v) involve the mining or removal of any oil, gas or minerals
from or through the surface of the
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Property; or (vi) increase the Owner Trust's risk of environmental liability
through any use other than for retail or office use. Any use of the Property in
violation of clause (v) above by an unrelated third party shall not give rise to
a Lease Event of Default, but shall give rise to an obligation on the part of
Kmart to make a purchase offer as described in "-- Condemnation and Casualty"
below.
INSURANCE
Under each Lease, Kmart is required, at its own cost and expense, to carry
workers' compensation insurance, insurance against loss by fire and other
casualties included under extended-coverage, all-risk endorsements in an amount
not less than 100% of the full insurable replacement value of the improvements
constituting part of the Property, comprehensive general public-liability
insurance with minimum coverage of $5,000,000 with respect to injury of any one
person, $5,000,000 with respect to any one accident or disaster and $5,000,000
with respect to damage to property. In no event shall the deductible amount
under any of such casualty insurance policies exceed $100,000. In the event that
Kmart fails to obtain or maintain such insurance, the respective Owner Trust may
obtain such coverage and will be reimbursed by Kmart for the cost thereof, plus
interest at the Default Rate from the date incurred by such Owner Trust. The
Owner Trusts shall have no obligation to maintain insurance of any type on the
Properties and Kmart shall not have any rights to direct actions or subrogation
against any insurance policy obtained by the Owner Trusts. Kmart may elect to
self-insure any leased Property against casualty, workers' compensation and
liability risks; provided that Kmart maintains a consolidated tangible net worth
of at least $750,000,000 calculated in accordance with generally accepted
accounting principles (the "Net Worth Standard").
CONDEMNATION AND CASUALTY
In the event of a condemnation or casualty affecting any Property, Kmart
will be obligated to continue paying rent and to restore such Property at its
own expense as nearly as practicable to the condition as existed immediately
before the condemnation or casualty occurred. If Kmart maintains the Net Worth
Standard at the time of the condemnation or casualty, or if insurance proceeds
or a condemnation award due to such occurrence are less than $250,000, any such
insurance proceeds or condemnation awards shall be released to Kmart for the
restoration of the Property. If Kmart does not maintain the Net Worth Standard
at the time of such loss, and if such condemnation award or casualty proceeds
are in excess of $250,000, however, the net proceeds of such insurance claim or
condemnation award shall be deposited with the Note Trustee for as long as the
related Note Indenture is outstanding and shall be disbursed to Kmart from time
to time upon its application for funds to meet the costs of rebuilding and
repairs as they become due, subject to certain provisions set forth in the
related Lease. In the event that condemnation proceeds exceed the actual cost of
restoration, such excess proceeds shall be distributed pursuant to the related
Note Indenture, as described in "DESCRIPTION OF THE NOTES" herein.
Notwithstanding the foregoing, in the event of a casualty affecting a
substantial portion or the entirety of a Property, Kmart may either (i) restore
the Property as set forth above or (ii) make a rejectable purchase offer to the
respective Owner Trustee within 30 days of such damage or destruction. In the
event of a permanent or temporary condemnation of the Property or any
substantial portion thereof that in Kmart's judgment renders the Property
unsuitable for its occupancy and use, or in the event of a condemnation of the
points of ingress and egress of the Property such that the property is rendered
unsuitable for its intended use, Kmart shall be obligated to make such a
rejectable offer to purchase the Property within 30 days of such condemnation
(or, with respect to a partial condemnation, within 90 days after the entry of a
final order of taking). If accepted, such purchase shall be effected on the next
scheduled Payment Date occurring not less than 100 days after the Owner Trust's
receipt of such offer, for a price at least equal to the principal of and
interest due on the related Notes. See "DESCRIPTION OF THE NOTES --
Distributions on the Notes -- Redemptions at Par" herein.
If Kmart makes such a rejectable offer to purchase such Property, the
corresponding Owner Trust will have 70 days to decide whether to accept such
offer. Such Owner Trust may not reject Kmart's purchase offer unless the Owner
Trust makes satisfactory provisions with the Note Trustee for the redemption of
the related Notes, which provisions shall include the escrowing of cash or cash
equivalents in amounts sufficient to
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redeem the Notes. If Kmart's offer is rejected and the Owner Trust makes
satisfactory arrangements with the Note Trustee, Kmart shall, on the Payment
Date on which Kmart's purchase would otherwise have occurred, pay to such Owner
Trust all payments accrued and owing under the Lease as of such Payment Date, at
which time the Lease shall terminate and the Owner Trust shall receive all
attendant insurance or condemnation proceeds. If, on the other hand, Kmart's
offer is accepted and the Owner Trust makes satisfactory arrangements with the
Note Trustee, the sale of the affected Property shall be closed on the next
scheduled Payment Date, with the purchase price (which shall be at least
sufficient to redeem the Notes, including any premium owing thereon) and all
Lease payments accrued and owing on that date paid in cash to the Bond Trustee
on behalf of the applicable Owner Trust. In the event of such sale, title to the
affected Property shall be conveyed to Kmart. All costs and expenses in
connection with such sale shall be paid by Kmart. See "DESCRIPTION OF THE NOTES
- -- Distributions on the Notes -- Redemptions at Par" herein.
EARLY TERMINATION
Kmart may terminate any Lease on any Payment Date on or after the tenth
year of the base term of the Lease (provided that no Lease Event of Default has
occurred and is continuing) if it determines that the Property has become
obsolete or that continued use thereof is no longer economic by providing at
least 12 months' and not more than 18 months' notice to the respective Owner
Trust. In such event, the Property may be (i) transferred to Kmart for an amount
sufficient to retire the related Notes (including the Make-Whole Premium
thereon) (the "Retirement Price"), (ii) sold to a third party, with the excess
of the Retirement Price over the sale price being contributed by Kmart or (iii)
retained by the respective Owner Trust, provided that such Owner Trust makes
satisfactory provisions with the Note Trustee for the redemption of the related
Notes, which provisions shall include the escrowing of cash or cash equivalents
in amounts sufficient to redeem the corresponding Notes at their respective
Retirement Prices, and the Property shall thereupon be released from the liens
of the respective Note Indenture and Mortgage.
An Owner Trust may accept Kmart's purchase offer with respect to the mining
or removal of oil, gas or minerals on a Property as described under "--
Assignment or Sublease; Use" above, if such offer is for an amount sufficient to
redeem the related Notes (including any premium thereon) and the Note Trustee
shall redeem the related Notes at par with a Make-Whole Premium.
EVENTS OF DEFAULT
The following are events of default under each Lease ("Lease Events of
Default"):
(i) the failure by Kmart to make Rental Payments when due continuing
for a period of five days after notice thereof to Kmart;
(ii) the failure by Kmart to make any other payment under the Lease
when due continuing for a period of 15 days after notice thereof to Kmart;
(iii) the failure by Kmart to maintain insurance as required by the
Lease;
(iv) the failure by Kmart to perform any of its other covenants or
obligations under the Lease or the Master Indemnification Agreement (as
defined in the Note Indentures) or certain of its covenants or obligations
under the Sale Agreement within 30 days after notice thereof in each case
only to the extent such covenants and obligations relate to the Property;
provided that any non-monetary default that is curable but is not
susceptible to a cure within 30 days shall not be deemed a default if a
cure is commenced within 30 days after such notice and is diligently
pursued thereafter; and provided further that in no event shall such cure
period for a non-monetary default exceed 180 days;
(v) certain events of bankruptcy, insolvency, reorganization pursuant
to bankruptcy or similar laws, receivership, dissolution or liquidation of
Kmart; provided that such events shall not constitute a Lease Event of
Default under a Lease so long as they do not affect the performance of
Lease covenants by Kmart thereunder or another party claiming under Kmart;
and
(vi) any breach of a representation by Kmart in the Lease or the Sale
Agreement relating to the Property or in any certificate expressly required
to be delivered pursuant thereto which (a) shall be incorrect when
discovered and shall have a material adverse effect on the Owner Trust, the
Owner
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Participant or the Owner Trust's interest in the Property or (b) is a
material breach of a representation in the Sale Agreement relating to
Kmart's financial condition, and that in either case shall not have been
cured within 30 days after receipt of written notice by Kmart from the
Owner Trust, unless the default is curable and Kmart shall be diligently
proceeding to correct such failure; provided that in no event shall such
cure period exceed 180 days.
The occurrence of a Lease Event of Default under any one Lease shall not
affect the obligations of Kmart and the Owner Trusts under any of the other
Leases, it being expressly provided that such Lease obligations are in no way
cross-defaulted.
If a Lease Event of Default has occurred with respect to any Lease and is
continuing beyond any applicable cure periods, the corresponding Owner Trust
(subject to the assignment of its rights under the Lease) may (i) terminate such
Lease and recover damages from Kmart as described below or (ii) re-enter the
Property without terminating such Lease to remove Kmart and its property, all at
Kmart's expense, with Kmart remaining liable for the balance of Rental Payments
accruing to the end of the base term of such Lease (less the amount received by
the appropriate Owner Trustee with respect to reletting the Property net of such
Owner Trustee's expenses in connection therewith). Kmart shall also pay the
Make-Whole Premium, if any, required to be paid by the related Owner Trust under
the related Note Indenture in the event such Owner Trust shall elect to re-enter
the Property without terminating the Lease. If a Lease is terminated upon the
occurrence of a Lease Event of Default thereunder, damages permitted to be
recovered by the related Owner Trust from Kmart include: (i) all Rental Payments
and other payments due under such Lease as of the date on which the Lease shall
be terminated (including any Make-Whole Premium), plus (ii) at the option of the
Owner Trust, any of: (a) the difference between the amount required to redeem
the related Notes and the fair market value of the Property; (b) the difference
between the amount required to redeem the related Notes and the present value of
the fair market rental value of the Property, discounted semiannually at a 6%
annual percentage rate for the remainder of the term of the Lease; (c) the
difference between the present value of all Rental Payments, discounted
semiannually at a 6% annual percentage rate, for the remainder of the base or
applicable renewal term of the Lease (the "Discounted Basic Rents") and the
present value of the fair market rental value of the Property for the remainder
of such term, discounted semi-annually at a 6% annual interest rate; or (d) an
amount equal to the greatest of the fair market value of the Property, the
Discounted Basic Rents and the amount required to redeem the related Notes. Fair
market values are determined by agreement between Kmart and the Owner Trust or
by appraisal. If the Owner Trust receives the sum of the amounts described in
clauses (i) and (ii)(d) above, the Owner Trust will convey the Property to
Kmart. Because the Owner Trusts have assigned certain of their rights under each
Lease to the Note Trustee, only the Bond Trustee, as assignee of the rights of
the Note Trustee, and not the Owner Trusts, may exercise remedies following a
Lease Event of Default. The above-described amounts will accrue interest at the
Default Rate from the final payment date specified in the Owner Trust's notice
of default and termination of a Lease to the date of actual payment by Kmart.
CONSEQUENCES OF KMART'S BANKRUPTCY
In the event a bankruptcy proceeding is instituted by or in respect of
Kmart under Title 11 of the Bankruptcy Code, Kmart would have the right, subject
to bankruptcy court approval, to affirm or reject the Leases. If a Lease were
rejected, payments due thereunder would terminate, thereby leaving the Owner
Trusts without cash flow to make payments on the Bonds. In the event a Lease
were rejected, the Owner Trusts (and by virtue of the Bond Indenture and
assignments described herein, the Bond Trustee thereunder) would have a claim
for damages against Kmart but, under Section 502(b)(6) of the Bankruptcy Code,
such claim would be limited to a maximum amount equal to the rent reserved under
such Lease, without acceleration, for the greater of one year or 15 percent (not
to exceed three years) of the remaining term of the Lease (plus rent already due
but unpaid). This limitation would not apply to holders of debt securities that
are direct obligations of Kmart. Therefore, except during the final year of the
Lease terms, if Kmart were the subject of proceedings under the Bankruptcy Code
and a Lease were rejected, the damages that could be claimed for rejection, even
assuming full recovery on such claim, may not alone be sufficient to repay the
Bonds. In addition, it is possible that a bankruptcy court could recharacterize
the transactions described herein as a secured borrowing by Kmart from the Owner
Trusts, in which case the bankruptcy court could permit Kmart
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to use or dispose of the Properties without making Lease payments to provide
debt service on the Bonds, subject to providing "adequate protection" (such as a
lien on substitute collateral) to the Owner Trusts. However, in the event of
such a recharacterization, the limitation on damages referred to above would
presumably be inapplicable.
THE ISSUER AND THE OWNER TRUSTS
The Issuer. The Issuer, a special-purpose corporation formed under the laws
of the State of New York, does not have, nor is it permitted or expected to
have, any significant assets or sources of funds other than the security for the
Bonds. The Bonds represent obligations solely of the Issuer, and the Bonds will
not be insured or guaranteed by Kmart, the Owner Participant, the Owner Trusts,
the Remainder Purchaser, the Note Trustee, the Bond Trustee, their affiliates or
any other person or entity. Consequently, Bond Owners must rely for repayment
upon payments under the Leases. None of the Note Indentures, the Bond Indenture
nor any of the Leases includes financial covenants or "event risk" provisions
that would afford Bond Owners protection in the event of a highly leveraged or
other transaction involving Kmart.
The Owner Trusts. The Owner Trusts are special purpose trusts established
pursuant to separate Trust Agreements. The activities of each of the Owner
Trusts are limited by the terms of the related Trust Agreement to purchasing,
owning, leasing and managing the related Properties, issuing the Notes and the
Mortgages and making payments on the Notes and other activities related thereto.
DESCRIPTION OF THE BONDS
The statements under this caption are summaries of the terms of the Bonds
and the Bond Indenture and do not purport to be complete. The summaries make use
of terms defined in and are qualified in their entirety by reference to all of
the provisions of the Bonds and the Bond Indenture, the forms of which have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
GENERAL
The Bonds are to be issued pursuant to the Bond Indenture, substantially in
the form filed as an exhibit to the Registration Statement of which this
Prospectus forms a part. The offered Bonds will consist of three series: the
Series A Bonds, the Series B Bonds and the Series C Bonds. The principal amount
of each series of Bonds is set forth on the cover page hereof.
REGISTRATION OF THE BONDS
Each series of Bonds will be offered for purchase in minimum denominations
of $1,000 and integral multiples thereof and will each initially be issued only
in fully registered form in the name of Cede, as the nominee of DTC, except as
provided below. Bonds may be surrendered by the Bondholder thereof for
registration of transfer or exchange for Bonds of the same series at the office
of the Bond Trustee. No service charge will be made for any transfer or exchange
of Bonds, but payment may be required of any tax or other governmental charges
that may be imposed in connection therewith. No person acquiring a beneficial
interest in a Bond will be entitled to receive a bond representing such person's
interest, except as set forth under " -- Definitive Bonds" below. Unless and
until Definitive Bonds are issued under the limited circumstances described
herein, all references to actions by Bondholders herein refer to actions taken
by DTC upon instructions from its Participants (as defined below), and all
references herein to distributions, notices, reports and statements to
Bondholders shall refer to distributions, notices, reports and statements to DTC
or Cede, as the registered Bondholder, as the case may be, for distribution to
the Bond Owners in accordance with DTC procedures. See " -- Registration of the
Bonds" and " -- Definitive Bonds" below.
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC
was created to hold securities for its participating organizations
("Participants") and to facilitate the clearance and settlement of securities
transactions between and among Participants through electronic book entries,
thereby
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eliminating the need for the physical movement of certificates. Participants
include securities brokers and dealers (including the Underwriter), banks, trust
companies and clearing corporations. Indirect access to the DTC system is also
available to banks, brokers, dealers, trust companies and other institutions
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly ("Indirect Participants").
Under the rules, regulations and procedures creating and affecting DTC and
its operations, DTC will be required to make book-entry transfers of Bonds among
Participants and to receive and transmit distributions of principal of and
interest due on the Bonds through its Same Day Funds Settlement System.
Participants and Indirect Participants with which Bond Owners have accounts with
respect to the Bonds are similarly required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Bond Owners.
Bond Owners that are neither Participants nor Indirect Participants but
that desire to purchase, sell or otherwise transfer ownership of, or other
interests in, Bonds may do so only through Participants and Indirect
Participants. In addition, Bond Owners will receive all distributions of
principal and interest from the Bond Trustee through DTC Participants. Under a
book-entry format, Bond Owners may experience some delay in their receipt of
payments, since such payments will be forwarded by the Bond Trustee to Cede, as
nominee for DTC. DTC will forward such payments to its Participants, which
thereafter will forward them to Indirect Participants or Bond Owners. The
forwarding of such distributions to the Bond Owners will be the responsibility
of such Participants. It is anticipated that the only registered Bondholder will
be Cede, as nominee of DTC. Therefore, Bond Owners will not be recognized by the
Bond Trustee as Bondholders, as that term is used herein, and Bond Owners will
be permitted to exercise the rights of Bondholders only indirectly through DTC
and its Participants.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants, and on behalf of certain banks, the ability of
Bond Owners to pledge Bonds to persons or entities that do not participate in
the DTC system, or to otherwise act with respect to such Bonds, may be limited
due to the absence of physical certificates for such Bonds.
DTC has advised the Issuer that it will take action permitted to be taken
by a Bondholder under the Bond Indenture only at the direction of one or more
Participants to whose accounts with DTC the Bonds are credited. DTC has further
advised the Issuer that it will take such actions with respect to any percentage
of Bondholders only at the direction of and on behalf of Participants whose
holdings include undivided interests that satisfy any such percentage. DTC may
take conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose holdings evidence
such undivided interests.
Kmart, the Owner Participant, the Owner Trusts, the Remainder Purchaser,
the Note Trustee and the Bond Trustee will have no liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Bonds held by Cede, as nominee for DTC, or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests. In the event of the insolvency of DTC or a Participant or Indirect
Participant in whose name book-entry Bonds are registered, the ability of the
Bond Owners of such book-entry Bonds to obtain timely payment may be impaired.
In addition, in such event, if the limits of applicable insurance coverage by
the Securities Investor Protection Corporation are exceeded or if such coverage
is otherwise unavailable, ultimate payment of amounts distributable with respect
to such book-entry Bonds may be impaired.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from DTC, and neither the Issuer nor Kmart takes any
responsibility for the accuracy thereof.
DEFINITIVE BONDS
The Bonds will be issued in fully registered, certificated form
("Definitive Bonds") to Bond Owners or their nominees, respectively, only if (i)
the Issuer or DTC advises the Bond Trustee in writing that DTC is no longer
willing or able to discharge properly its responsibilities as depository with
respect to the Bonds and the
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Bond Trustee and the Issuer are unable to locate a qualified successor, (ii) the
Issuer, at its option, elects to terminate the book-entry system through DTC or
(iii) after the occurrence of a Bond Indenture Event of Default, Bond Owners
representing in the aggregate not less than a majority of the aggregate
principal amount of such Bonds (a "Bond Majority in Interest") advise the Bond
Trustee and DTC through Participants, in writing, that the continuation of a
book-entry system through DTC (or a successor thereto) is no longer in the Bond
Owners' best interest.
Upon the occurrence of any event described in the immediately preceding
paragraph, the Bond Trustee is required to notify all Bond Owners through
Participants of the availability of Definitive Bonds. Upon surrender by DTC of
the fully registered global bonds representing each series of Bonds and receipt
of instructions for re-registration, the Bond Trustee will reissue the bonds as
Definitive Bonds to Bond Owners.
Distributions of principal of, premium, if any, and interest due on the
Bonds will thereafter be made by the Bond Trustee directly to the holders of
Definitive Bonds in whose names the Definitive Bonds were registered at the
close of business on each Record Date in accordance with the procedures set
forth herein and in the Bond Indenture. Such distributions will be made by check
payable to the order of the Bondholder mailed to the address provided by such
Bondholder or if such Bondholder owns of record one or more Bonds that have
principal denominations aggregating at least $5,000,000 and an account number is
included in the Register, by wire transfer in immediately available funds to a
bank account maintained in the United States. The final payment on any Bond,
however, will be made only upon presentation and surrender of such Bond at the
Bond Trustee's corporate trust office.
Definitive Bonds will be transferable and exchangeable at the corporate
trust office of the Bond Trustee. No service charge will be imposed for any
registration of transfer or exchange, but the Bond Trustee may require payment
of a sum sufficient to cover any tax or other governmental charge imposed in
connection therewith.
DISTRIBUTIONS ON THE BONDS
On each Payment Date, an amount equal to all payments due on the Notes on
such Payment Date shall be transferred by Kmart to the Bond Trustee, pursuant to
its obligations under each of the Leases to make Rental Payments, as the right
to receive such Rental Payments will have been assigned by the Owner Trustees to
the Note Trustee and from the Note Trustee to the Bond Trustee. Such amounts
shall be promptly distributed by the Bond Trustee on the date of receipt, to the
extent available therefor, to pay in full the principal of, premium, if any, and
interest then due on the related series of Bonds (including any Make-Whole
Premium thereon) and, in case such amount shall be insufficient to pay in full
the whole amount so due and unpaid, then such amounts shall be so distributed as
payment of principal and interest, pro rata among the Bonds of each series,
without any preference or priority of one such Bond over another, according to
the aggregate amount due for principal and interest (including any Make-Whole
Premium thereon) on the date of payment. If any Payment Date is not a business
day, such payment shall be made on the next succeeding business day, without any
accrued interest from such Payment Date. If on any Payment Date amounts received
from Kmart by the Bond Trustee are insufficient to provide for all payments due
to the Bondholders on such Payment Date, any past-due payments of principal of,
premium, if any, and interest due on Bonds of any series will be distributed by
the Bond Trustee to Bondholders on the date such amounts are received by the
Bond Trustee. To the extent permitted by applicable law, amounts not paid on the
appropriate Payment Date will accrue interest at a rate 1% above the rate shown
on the cover page hereof for Bonds of such series ("Default Interest").
Payments of Interest. Interest will be payable semi-annually, in
immediately available funds, on the unpaid principal amount of each outstanding
series of Bonds at the applicable interest rate on each Payment Date, commencing
July 1, 1994. Interest shall be calculated on the basis of a 360-day year
consisting of 12 months of 30 days each. Interest (other than Default Interest)
payable on any Payment Date shall accrue on each Bond from and including the
previous Payment Date (or from and including the Closing Date with respect to
the first Payment Date) to but excluding the Payment Date. Default Interest
shall accrue from the Payment Date on which any past-due payment was due.
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<PAGE> 27
Optional Redemption. The Bonds are not subject to redemption at the option
of the Issuer.
Scheduled Redemption. The Bond Indenture will provide for the payment of
principal on and the corresponding partial, pro rata, redemption of Bonds of
each series, on scheduled Payment Dates through the operation of the Sinking
Fund. The aggregate principal amount of Bonds of each series to be redeemed on
each such Payment Date, as well as the aggregate principal amount payable on the
final maturity date of each series of Bonds, is set forth in the table below. In
the event of any partial redemption of any series of Bonds other than by
operation of the Sinking Fund, the scheduled amount of each Sinking Fund payment
with respect to the Bonds of such series (and the amount due at the stated
maturity of such Bonds) will be reduced proportionately.
SINKING FUND PAYMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A BONDS SERIES B BONDS SERIES C BONDS
-------------- -------------- --------------
<S> <C> <C> <C>
July 1, 1994.............................
January 1, 1995..........................
July 1, 1995.............................
January 1, 1996..........................
July 1, 1996.............................
January 1, 1997..........................
July 1, 1997.............................
January 1, 1998..........................
July 1, 1998.............................
January 1, 1999..........................
July 1, 1999.............................
January 1, 2000..........................
July 1, 2000.............................
January 1, 2001..........................
July 1, 2001.............................
January 1, 2002..........................
July 1, 2002.............................
January 1, 2003..........................
July 1, 2003.............................
January 1, 2004..........................
July 1, 2004.............................
January 1, 2005..........................
July 1, 2005.............................
January 1, 2006..........................
July 1, 2006.............................
January 1, 2007..........................
July 1, 2007.............................
January 1, 2008..........................
July 1, 2008.............................
January 1, 2009..........................
July 1, 2009.............................
January 1, 2010..........................
July 1, 2010.............................
January 1, 2011..........................
July 1, 2011.............................
January 1, 2012..........................
July 1, 2012.............................
January 1, 2013..........................
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
SERIES A BONDS SERIES B BONDS SERIES C BONDS
-------------- -------------- --------------
<S> <C> <C> <C>
July 1, 2013.............................
January 1, 2014..........................
July 1, 2014.............................
January 1, 2015..........................
July 1, 2015.............................
January 1, 2016..........................
July 1, 2016.............................
January 1, 2017..........................
July 1, 2017.............................
January 1, 2018..........................
July 1, 2018.............................
January 1, 2019..........................
-------------- -------------- --------------
$ $ $
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
Redemptions at a Premium. Each series of Bonds will be subject to
redemption in part, pro rata, in the event that Notes are redeemed as a result
of (i) Kmart's termination of any Lease due to economic obsolescence or (ii)
Kmart's termination of any Lease due to the mining or removal of oil, gas or
minerals from a Property by an unrelated third party. See "DESCRIPTION OF THE
NOTES -- Distributions on the Notes -- Redemptions at a Premium" herein. Such
Bonds will be redeemed on a Payment Date, provided that not less than 30 nor
more than 45 days' notice is given by first-class mail to each Bondholder of a
Bond to be redeemed at its address appearing in the Register at a redemption
price equal to the sum of (i) the principal amount thereof plus (ii) accrued
interest, if any, to the date of redemption plus (iii) the Make-Whole Premium.
The Make-Whole Premium with respect to the Bonds shall mean the sum of the
Make-Whole Premiums on all related Notes being redeemed. The "Make-Whole
Premium", if any, on any Note shall mean an amount equal to the positive
difference, as of the date of determination, between (i) the present value of
all future payments of principal and interest, including any principal amount
due at maturity, discounted semi-annually at an interest rate per annum equal to
(a) the average yield for "This Week", as provided in the Treasury Constant
Maturity Yield Index published by the Federal Reserve Bank of New York in the
Federal Reserve Statistical Release designated "H.15 (519) Selected Interest
Rates", or a successor publication, published next preceding two business days
prior to redemption, for instruments having a maturity corresponding to the
remaining average life of such Note (the "TCMYI") plus (b) 50 basis points, and
(ii) the outstanding principal amount of such Note to be redeemed; provided,
however, that if there is no TCMYI for instruments having a maturity
corresponding to the average life of such Note, then the TCMYI shall equal the
straight line interpolation between the interest rates on the respective
Treasury issue both greater and lesser, most closely approximating the average
life of the Note (rounded to the fourth decimal place); and provided further,
that if the average life of such Note is less than one year, the one-year TCMYI
shall be used.
Redemptions at Par. Each series of Bonds will also be subject to redemption
in part on any Payment Date at a redemption price equal to the principal amount
thereof, together with accrued interest to the Payment Date of such redemption,
upon receipt by the Bond Trustee of payments (i) resulting from the redemption
of the related Notes or any portion of the Notes in the event of a condemnation
or casualty affecting all or a substantial portion of the related Property or
(ii) in the event that a portion of condemnation proceeds is paid to the holders
of the Notes following a partial condemnation of a Property. See "DESCRIPTION OF
THE NOTES -- Distributions on the Notes -- Redemptions at Par" herein. The
principal amount of any series of Bonds to be so redeemed will be equal to the
then-outstanding aggregate balances of the related Notes relating to the
Property, the Lease of which is being terminated in connection with such
casualty or condemnation.
If Bonds are to be partially redeemed (except by operation of the Sinking
Fund), each outstanding Bond of a series of Bonds to be so redeemed will be
redeemed pro rata, without priority of one Bond over another, in
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<PAGE> 29
the proportion that the aggregate principal amount of each such Bond bears to
the aggregate amount of all outstanding Bonds of such series.
Each Bondholder will be entitled to receive a pro rata share of any
interest payment, Sinking Fund payment and redemption payment made with respect
to the series of Bonds in which such Bond evidences an interest. Upon each
redemption of any Bond or any portion thereof (including redemptions described
above under "-- Redemptions at a Premium" and "-- Redemptions at Par"), interest
on such Bond or the redeemed portion thereof will cease to accrue on the Payment
Date therefor. If any Bond called for redemption shall not be so paid upon such
redemption date, the principal of and premium, if any, shall, until paid, bear
interest from the redemption date at the rate provided in such Bond.
In the event that there shall have been any partial redemption of the Bonds
(other than by operation of the Sinking Fund), the amount of each Sinking Fund
payment with respect to such Bonds subsequent to such redemption shall be
reduced proportionately, and set forth in a new schedule of Sinking Fund
payments attached to the related Note Indentures provided by the Note Trustee to
the Bond Trustee based on information supplied to the Note Trustee by the Owner
Trustee.
SECURITY
The Bonds will be secured primarily by (i) the Note Assignment from the
Issuer to the Bond Trustee and (ii) the Collateral Assignments from the Note
Trustee to the Bond Trustee. Each Series A Note, Series B Note and Series C Note
will have a maturity date and an interest rate corresponding to the interest
rate on the Series A Bonds, Series B Bonds and Series C Bonds, respectively. The
aggregate principal amount of each series of Notes with respect to all of the
Properties will be the same as the aggregate principal amount of the
corresponding series of Bonds. See "STRUCTURE OF THE TRANSACTION" and
"DESCRIPTION OF THE NOTES" herein.
EVENTS OF DEFAULT
If any one or more of the following events of default under the Bond
Indenture ("Bond Indenture Events of Default") shall occur:
(i) non-payment (a) of (1) any payment of interest accrued on any of
the Bonds or (2) any Sinking Fund payment on any of the Bonds, within five
days after notice that the same is due; or (b) of other sums which the
Issuer is obligated to pay under the Bond Indenture including any other
redemption payment (together with any Make-Whole Premium) within 15 days
after notice that the same is due;
(ii) default by the Issuer in the due observance or performance of any
term, covenant or condition on its part to be performed under the Bond
Indenture (other than a default under clause (i) above) that would have a
material adverse effect on the lien of the Bond Indenture or the repayment
of the Bonds, continued unremedied for a period of 30 days after notice
thereof to the Issuer from the Bond Trustee or a Bond Majority in Interest,
except that if any such default cannot with due diligence be cured within a
period of 30 days, such default shall not be deemed to continue if the
Issuer proceeds promptly and with all due diligence to cure the default and
diligently completes the curing thereof;
(iii) any of the representations or warranties made by the Issuer is
found to be untrue in any material respect which would have a material
adverse effect on the lien of the Bond Indenture or the repayment of the
Bonds;
(iv) a Note Indenture Event of Default (as defined herein) shall have
occurred and be continuing;
(v) the Issuer shall commence a voluntary case or other proceeding
seeking liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect, or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or it shall consent to any such relief or to the
appointment of or taking or possession by any such official in any
involuntary case or other proceeding commenced against it, or it shall make
a general assignment for the benefit of creditors; or
28
<PAGE> 30
(vi) a decree or order for relief shall be entered by a court having
jurisdiction over the Issuer in any involuntary case under any bankruptcy,
insolvency or other similar law now or hereafter in effect, or appointing a
trustee, receiver, liquidator, custodian or other similar official of the
Issuer, its interest in the Note Indentures or any substantial part of its
property, or ordering the winding-up or liquidation of its affairs, and
such decree or order shall remain undismissed or unstayed for a period of
90 consecutive days;
then (except in the case of a Bond Indenture Event of Default set forth in
clause (iv) above of less than all of the Note Indentures, which may not be a
basis to accelerate the Bonds) in any such event, the Bond Trustee may, or, upon
written direction of a Bond Majority in Interest, the Bond Trustee shall, upon
notice to the Issuer (with a copy to Kmart and the Owner Trustee) accelerate the
maturity of the affected Bonds; provided, however, that in the case of a Bond
Indenture Event of Default set forth in clause (v) or clause (vi) above, the
maturity of the Bonds shall automatically be accelerated without notice from any
party to another. In such case, the unpaid principal amount of the accelerated
Bonds, with accrued interest thereon, shall become immediately due and payable;
provided, however, that a Bond Majority in Interest may rescind such
acceleration of the Bonds if such Bond Indenture Event of Default is cured.
The determination of a Bond Indenture Event of Default shall be made
separately with respect to each series of Bonds. The occurrence of a Bond
Indenture Event of Default with respect to a series of Bonds by itself shall not
constitute or trigger a Bond Indenture Event of Default with respect to any
other series of Bonds, although the same circumstances may give rise
simultaneously to Bond Indenture Events of Default for more than one series of
Bonds.
At any time after such acceleration of all of the Bonds and before any sale
of the trust estate created by the Bond Indenture, or any part thereof, shall
have been made pursuant to any sale as provided in the Bond Indenture, a Bond
Majority in Interest may rescind and annul such declaration and its consequences
if: (i) there shall have been paid to or deposited with the Bond Trustee a sum
sufficient to pay (a) all overdue installments of interest on all Bonds, (b) the
principal of and premium, if any, on any Bonds that have become due otherwise
than by reason of such acceleration, and interest thereon at the respective
rates provided in the Bonds for late payments of principal or premium and (c) to
the extent that payment of such interest is lawful, interest upon overdue
installments of interest at the rate specified in the Bonds; and (ii) all Bond
Indenture Events of Default, other than the non-payment of the principal of
Notes which have become due solely by such acceleration, have been cured or
waived as provided in the Bond Indenture. No such rescission shall affect any
subsequent Bond Indenture Event of Default or impair any right with respect to
such subsequent Bond Indenture Event of Default.
The Bond Trustee must notify the Bondholders within 45 days after the
occurrence of any default which could become a Bond Indenture Event of Default
known to it, unless it has determined (except in the case of defaults in payment
of the Bonds) that withholding such notice is in the best interests of the
Bondholders as provided in Section 315(b) of the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The Bond Indenture does not require Kmart
to furnish periodic evidence of compliance with the terms of the Leases.
29
<PAGE> 31
ENFORCEMENT OF REMEDIES
The Bond Indenture provides that if a Bond Indenture Event of Default shall
have occurred and be continuing, the Bond Trustee may exercise certain rights or
remedies available to it under applicable law, including foreclosing on the lien
of the Bond Indenture as against the Asset Pool that relates to the affected
series of Bonds (subject to the rights of Kmart or any assignee or sublessee if
no Lease Event of Default has occurred); provided, however, that if a Bond
Indenture Event of Default arises solely by reason of one or more events or
circumstances that constitute a Note Indenture Event of Default under fewer than
all of the Note Indentures, neither the Bond Trustee nor a Bond Majority in
Interest shall be entitled to accelerate the maturity of any of the Bonds and
the Bond Trustee and Bondholders shall only be entitled to exercise remedies
with respect to the portion of the Note Trust Estate relating to such Note
Indenture or Note Indentures and the Notes issued therefrom.
If a Lease Event of Default shall have occurred and be continuing, the Bond
Trustee as assignee of the Issuer's rights under the related Note Indenture and
of the related Lease and Mortgage shall be entitled to exercise remedies
afforded to the Note Trustee under the related Note Indenture, as well as the
remedies afforded to the Owner Trust by the related Lease for Lease Events of
Default. See "DESCRIPTION OF THE LEASES -- Events of Default" herein.
No Bond Owner shall have any right to institute any suit, action or
proceeding for the foreclosure of the lien of the Bond Indenture, for the
appointment of a receiver or for the enforcement of any remedy unless a Bond
Majority in Interest has directed the Bond Trustee in writing to institute such
action, suit or proceeding and has offered indemnity as provided in the Bond
Indenture, the Bond Trustee shall have failed to act for 30 days thereafter and
no inconsistent direction shall have been received from a Bond Majority in
Interest during such 30-day period. Nothing contained in the Bond Indenture,
however, impairs the right of any Bond Owner to enforce the payment of the
principal of, premium, if any, and interest due on any Bond at or after the
maturity thereof.
The rights of the Bond Owners under the Bond Indenture are limited in
certain respects. A Bond Indenture Event of Default may exist without a Lease
Event of Default also existing and in such event Kmart may remain in possession
of the Properties and will not be required to pay more than the amounts of rent
required to be paid periodically under the Leases (in the absence of a Lease
Event of Default) even if the Bonds have been accelerated. Also, it is possible
that a court would not apply the measure of damages specified in the Lease in
the event of a Lease Event of Default.
DISCHARGE OF LIEN
The Bond Indenture will cease to be of further effect upon, among other
things, payment in full of the principal of, premium, if any, and interest due
on all of the Bonds.
AMENDMENTS
Without the consent of any of the Bondholders, each of the Issuer and the
Bond Trustee shall enter into one or more supplemental Bond Indentures (each, a
"Supplemental Bond Indenture"), provided that such Supplemental Bond Indentures
are not inconsistent with the rights of Kmart under any Lease: to evidence the
succession of another corporation to the rights, obligations and interests of
Kmart or the Issuer; to subject additional property to the lien of the Bond
Indenture; to modify, eliminate or add provisions of the Bond Indenture as
necessary to qualify the Bond Indenture (including any Supplemental Bond
Indenture) under the Trust Indenture Act; to cure any ambiguity or to correct
any inconsistency in the Bond Indenture; to evidence the succession of a new
Bond Trustee or to add a co-trustee or separate trustee; to make other
amendments or provisions with respect to matters or questions arising under the
Bond Indenture that shall not be inconsistent with the provisions of the Bond
Indenture, provided that such amendment or provision shall not adversely affect
in any material respect the interest of the Bondholders; or to make such other
amendments or provisions as are necessary to protect the REMIC status of the
REMICs.
With the consent of a Bond Majority in Interest, the Issuer may, and the
Bond Trustee shall, enter into Supplemental Bond Indentures for the purpose of
adding provisions or changing the rights and obligations of
30
<PAGE> 32
the Bondholders and of the Issuer; provided, however, that no such Supplemental
Bond Indenture shall (a) be inconsistent with the rights of Kmart under any
Lease or (b) without the consent of each holder of an outstanding Bond affected
thereby: change the stated maturity of the principal of, or any installment of
interest, or the dates or circumstances of payment of premium, if any, on any
Bond, or reduce the principal amount thereof or the interest thereon or any
amount payable upon the redemption thereof, or change the circumstances for
redemption; impair the right to institute suit for the enforcement of any such
payment; permit the creation of any lien prior to or pari passu with the lien of
the Bond Indenture; terminate the lien of the Bond Indenture or deprive any
Bondholder of the security afforded by the lien of the Bond Indenture; reduce
the amounts payable under the Notes assigned to the Bond Trustee or change the
time for the payment thereof so that such payments are less than the amounts
necessary to pay when due the principal of, premium, if any, and interest on the
outstanding Bonds; reduce the percentage in principal amount of the outstanding
Bonds of all series, the consent of whose holders is required to approve such
Supplemental Bond Indentures or any waiver; or modify any of the provisions
concerning Supplemental Bond Indentures except to further restrict such
provisions. Promptly after the execution by the Issuer and the Bond Trustee of
any Supplemental Bond Indenture, the Bond Trustee shall transmit a written
notice, setting forth in general terms the substance of such Supplemental Bond
Indenture, to all Bondholders.
THE BOND TRUSTEE
The Bank of New York, a New York banking corporation, will act as the Bond
Trustee. Kmart may from time to time have banking relations with the Bond
Trustee in the ordinary course of business.
The Bond Indenture provides that in the case of any Bond Indenture Event of
Default, the Bond Trustee will exercise such of the rights and powers vested in
it by the Bond Indenture, and will use the same degree of care and skill in its
exercise thereof, as a prudent person would exercise under the circumstances in
the conduct of his or her own affairs. The Bond Trustee will not be liable for
any error of judgment made in good faith (unless the Bond Trustee is negligent
in ascertaining the pertinent facts) or any action taken or omitted to be taken
by it in good faith in accordance with the direction of a Bond Majority in
Interest. Subject to such provision, the Bond Trustee will be under no
obligation to exercise any of the rights and powers granted it under the Bond
Indenture at the direction of any Bondholder if the Bond Trustee determines in
good faith that the action so directed would involve it in personal liability.
DESCRIPTION OF THE NOTES
The statements under this caption are summaries of the terms of the Notes
and the Note Indentures, each as amended and restated concurrently with the
purchase of the Notes from the Initial Noteholder, and do not purport to be
complete. The summaries make use of terms defined in, and are qualified in their
entirety by reference to, all of the provisions of the Notes and the Note
Indentures, the forms of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part. Except as otherwise indicated, the
following summaries relate to the Notes and the Note Indenture relating to each
Property in respect of which such Notes are to be issued.
GENERAL
Each Note Indenture is an agreement between an Owner Trust and the Note
Trustee and relates to a single Property. Three series of Notes, each
corresponding to one of the series of Bonds, have been issued under each Note
Indenture. Each series of Notes will be amended and restated to have the same
maturity date and interest rate as the Bonds of the related series. The Notes
issued pursuant to each Note Indenture are secured as described below under "--
Security", but the Notes, Note Indentures and Mortgages do not have
cross-default or cross-collateralization provisions. So long as the Notes are
subject to the lien of the Bond Indenture, the Bond Trustee shall be entitled to
exercise all the rights, privileges and remedies of the holders of Notes under
each Note Indenture.
Each Owner Trust has leased its corresponding Property to Kmart. Kmart is
obligated under each Lease to make Rental Payments to the related Owner Trust in
amounts that will be at least sufficient to pay when
31
<PAGE> 33
due all payments required to be made on the Notes. The Notes are not direct
obligations of, or guaranteed by, Kmart. Payments under the Leases in excess of
the amounts necessary to make required payments on the Notes will be paid by the
Bond Trustee to the Note Trustee for distribution pursuant to the appropriate
Note Indenture and will not be available for distributions on the Notes or the
Bonds, except that upon a Note Indenture Event of Default, amounts received by
the Bond Trustee shall be distributed to the Note Trustee, to the extent such
amounts are due to it for the performance of its duties, and then to the
Bondholders until they have received the full amount of principal, premium, if
any, and interest accrued on the Notes, prior to distribution to the Note
Trustee for distribution pursuant to the appropriate Note Indenture to the
appropriate Owner Trustee. Excepted Payments (as defined herein) will not be
available for distribution to the Bondholders. See "-- Remedies" herein. Kmart's
rental obligations as lessee under each Lease will be general obligations of
Kmart.
DISTRIBUTIONS ON THE NOTES
Interest on the Notes is payable semi-annually, in immediately available
funds, on the unpaid principal amount of each of the Notes at the applicable
interest rate on each Payment Date, commencing July 1, 1994. Interest is
calculated on the basis of a 360-day year consisting of 12 months of 30 days
each. Interest payable on any Payment Date accrues on each Note from and
including the previous Payment Date (or from and including the Closing Date with
respect to the first Payment Date) to but excluding the Payment Date.
Scheduled Redemption. The Note Indentures provide for the payment of
principal on and the simultaneous partial redemption of the Notes on scheduled
Payment Dates (the "Scheduled Payment Dates") through the operation of the
Sinking Fund. The aggregate principal amount of Notes to be redeemed on each
such Scheduled Payment Date, as well as the aggregate principal amount payable
on the final maturity date of each series of Notes, is set forth in the schedule
attached to the related Note. The Notes of each series redeemed through the
operation of the Sinking Fund shall be redeemed on a pro rata basis. In the
event of any partial redemption of any series of Notes (other than through the
operation of the Sinking Fund), the amount of each sinking fund payment on such
Notes (and the amount due at the stated maturity of such series of Notes) will
be reduced proportionately and the schedules attached to the affected Notes will
be amended.
Redemptions at a Premium. The related Notes are also subject to redemption,
in part, in the event that (i) Kmart terminates any Lease due to economic
obsolescence or (ii) a Lease is terminated due to an unpermitted use of the
related Property by an unrelated third party involving the mining or removal of
oil, gas or minerals. See "DESCRIPTION OF THE LEASES -- Early Termination"
herein. Such Notes will be redeemed on a Payment Date, provided that not less
than 30 days' notice is given by first-class mail to each holder of a Note to be
redeemed at its address appearing in the Note register at a redemption price
equal to the sum of (i) the principal amount thereof plus (ii) accrued interest,
if any, to the date of redemption plus (iii) the Make-Whole Premium with respect
to the Notes.
Redemptions at Par. The related Notes are also subject to redemption in
whole, due to a condemnation or casualty described in clause (i), following, and
in part, due to a partial condemnation described in clause (ii), following, on
any Payment Date at a redemption price equal to the principal amount thereof,
together with accrued interest to the Payment Date of such redemption, on not
less than 30 days' notice by mail, upon receipt by the Note Trustee of payments
(i) resulting from the termination of a Lease by Kmart in the event of a
condemnation or casualty affecting all or a substantial portion of the related
Property in which case the principal amount of Notes to be redeemed will be
equal to the then-outstanding aggregate balances of the Notes corresponding to
the Lease being terminated or (ii) in the event that a portion of such
condemnation proceeds is paid to the Note Trustee pursuant to the Lease
following a partial condemnation of a Property where such Lease is not
terminated, in which case the principal amount of the Notes to be redeemed will
equal the amount of such condemnation proceeds allocated to the Note Trustee;
provided that such amount is greater than the lesser of (i) $500,000 and (ii)
10% of the purchase price of the related Property at the Closing Date. See
"DESCRIPTION OF THE BONDS -- Distributions on the Bonds -- Redemptions at Par"
above.
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<PAGE> 34
Optional Redemption. The Notes are not subject to redemption at the option
of the Owner Trustee or the Issuer.
If less than all of the Notes are to be redeemed, redemptions (except
through the operation of the Sinking Fund) shall be made on a pro rata basis
without preference or priority of any Note over any other Note. Upon each
redemption of any Note or any portion thereof (including redemptions described
above under "-- Redemptions at a Premium" and "-- Redemptions at Par"), interest
on such Note or the redeemed portion thereof will cease to accrue on the Payment
Date therefor, and the holder thereof may receive the principal amount redeemed,
and premium, if any.
SECURITY
The Notes issued by each Owner Trust are secured primarily by (i) the
related Lease Assignment, and (ii) the Mortgage on the related Property,
including the rights to receive payments under the foregoing (except for
Excepted Payments) and all rights (exclusive of Excepted Rights) of the Owner
Trustee, now existing or hereafter arising, to exercise any election or option
or to make any decision or determination or to give or receive any notice,
consent, waiver or approval or to take any other action under or in respect of
any of the foregoing, as well as all rights, powers and remedies on the part of
the Owner Trustee, now existing or hereafter arising and whether arising under
any of the foregoing or by statute or at law or equity or otherwise, arising out
of any Note Indenture Event of Default. Notes issued under each Note Indenture
will not be secured by any of the Properties securing Notes issued under any
other Note Indenture (including any other property acquired by any of the Owner
Trusts).
"Excepted Payments" include, among other things, certain indemnity payments
by Kmart to the appropriate Owner Trustee or the Owner Participant, any amounts
payable under any Operative Document (as defined in the Note Indentures) to pay
such Owner Trustee's fee or to reimburse such Owner Trustee, the Owner
Participant or their affiliates for performing or complying with any of the
obligations of Kmart under any Operative Document, any payments to the Owner
Participant constituting payment of the purchase price for such Owner
Participant's interest in the Owner Trust, insurance proceeds (or self-insurance
payments or policy deductibles) payable to such Owner Trustee or to the Owner
Participant under liability insurance maintained by Kmart pursuant to the terms
of such Lease, or insurance proceeds payable under policies separately
maintained by the Owner Trustee or the Owner Participant in satisfaction of
Kmart's obligation to maintain such insurance under the Lease, and any payments
of interest to the extent attributable to the foregoing payments.
"Excepted Rights" shall mean (i) all rights with respect to Excepted
Payments of the person entitled thereto and (ii) all rights and privileges under
the Granting Clause Documents (as defined in the Note Indentures) or Operative
Documents expressly reserved to the appropriate Owner Trustee or the Owner
Participant with the Note Trustee pursuant to clauses (aa), (bb) and (cc) of the
granting clauses of the related Note Indenture for the periods specified in such
Note Indenture.
EVENTS OF DEFAULT
The following are Events of Default under each of the Note Indentures
("Note Indenture Events of Default"):
(i) non-payment (a) of (1) any payment of interest accrued on any of
the Notes or (2) any Sinking Fund payment on any of the Notes within five
days after notice that the same is due; or (b) of other sums that the
appropriate Owner Trustee is obligated to pay thereunder, but excluding any
Excepted Payments, within 15 days after notice that the same is due;
(ii) a Lease Event of Default shall have occurred and be continuing
(other than any such Lease Event of Default arising by reason of nonpayment
of, or failure to perform with respect to, any Excepted Payment when due);
provided that the Note Trustee or holders of Notes owning not less than a
majority in aggregate principal amount of all outstanding Notes under a
Note Indenture (a "Note Majority in Interest") have given to the
appropriate Owner Trustee, by registered or certified mail, a written
notice
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stating the Note Trustee's or such holders' intention to terminate the
Lease, commence action to foreclose on the Property or exercise any other
comparable remedies under the Lease at least 30 days prior to the exercise
thereof;
(iii) the related Owner Trust shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other similar
law now or hereafter in effect, or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or it shall consent to any such relief or
to the appointment of or taking of possession by any such official in any
involuntary case or other proceeding commenced against it, or it shall make
a general assignment for the benefit of creditors;
(iv) a decree or order for relief shall be entered by a court having
jurisdiction over the related Owner Trust in any involuntary case under any
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a trustee, receiver, liquidator, custodian or other similar
official of such Owner Trust, its interest in the Note Trust Estate or any
substantial part of the Owner Trust's property, or ordering the winding-up
or liquidation of such Owner Trust or its affairs, and such decree or order
shall remain undismissed or unstayed for a period of 90 consecutive days;
(v) a default by the related Owner Trustee in the due observance or
performance of any material term, covenant or condition on its part to be
performed under any of the Operative Documents set forth therein (other
than a default under clause (i) or (ii) above) including any failure by the
related Owner Trustee to comply in any material respect with any covenant
contained in subparagraphs (aa), (bb) or (cc) of the granting clause of the
Note Indenture, continued unremedied for a period of 30 days after notice
thereof from or on behalf of the Note Trustee to such Owner Trustee, except
that if any such default cannot with due diligence be cured within a period
of 30 days, such default shall not be deemed to continue if such default is
curable and such Owner Trustee proceeds promptly and with all due diligence
to cure the default and diligently completes the curing thereof within 180
days; and
(vii) any of the representations or warranties made by the related
Owner Trustee in any of the Operative Documents is found to be untrue in
any material respect and any such breach impairs the lien of the Note
Indenture, has a material adverse effect on the repayment of the Notes or
results in a material diminution of the value of the Note Trust Estate.
REMEDIES
Subject to certain rights of the Owner Trustee and the Owner Participant to
cure certain Note Indenture Events of Default and to purchase the related Notes
after the occurrence of a Note Indenture Event of Default, as set forth in the
Note Indentures, during the continuance of any Note Indenture Event of Default,
the Note Trustee in its discretion may (or when so directed by a Note Majority
in Interest shall), or a Note Majority in Interest may, in any such case, by
notice in writing to the Owner Participant and the appropriate Owner Trustee
(and to the Note Trustee if given by holders of the outstanding related Notes),
declare the principal of all the outstanding related Notes and the interest
accrued thereon to be due and payable immediately, and thereupon the same shall
become immediately due and payable together, in the case of a Note Indenture
Event of Default that is a Lease Event of Default, with a Make-Whole Premium on
the principal amount then due. In the event that the Owner Trustee elects to
purchase the Notes after the occurrence of a Note Indenture Event of Default,
the purchase price to be paid to the holders of such Notes shall include a
Make-Whole Premium unless such Note Indenture Event of Default arises from a
Lease Event of Default relating to the bankruptcy or insolvency of Kmart.
At any time after such acceleration and before any sale of any portion of
the collateral securing the Note Indenture, a Note Majority in Interest may
rescind and annul such declaration and its consequences if: (i) there shall have
been paid to or deposited with the Note Trustee a sum sufficient to pay (a) all
overdue installments of interest on the related Notes, (b) the principal of and
premium, if any, on any related Notes that have become due otherwise than by
such acceleration and interest thereon at the respective rates provided in the
Notes for late payments of principal or premium, and (c) to the extent that
payment of such interest is
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lawful, interest upon overdue installments of interest at the rate of 1% per
annum over the weighted average rate of interest for the Notes; and (ii) all
Events of Default, other than the non-payment of the principal of Notes that
have become due solely by such acceleration, have been cured or waived by a Note
Majority in Interest. No such rescission shall affect any subsequent Note
Indenture Event of Default or impair any right with respect to such subsequent
Note Indenture Event of Default.
ENFORCEMENT OF REMEDIES
Subject to the limitations set forth in the Note Indentures, if a Note
Indenture Event of Default that constitutes a Lease Event of Default shall have
occurred and be continuing, then in every such case the Note Trustee, as
assignee and mortgagee or secured party thereunder or otherwise, may, to the
extent permitted by applicable law, exercise any or all of the rights and powers
and pursue any or all of the remedies under the related Lease, Mortgage, Note
Indenture and the Granting Clause Documents and, in connection therewith, may
take possession of all or part of the related Note Trust Estate and may exclude
the appropriate Owner Trustee and Kmart (provided that a Lease Event of Default
has occurred and is continuing) and, to the extent permitted by applicable law,
all persons claiming under either of them wholly or partly therefrom; provided,
however, that, notwithstanding any provision herein to the contrary, the Note
Trustee shall not exercise any remedies against the related Note Trust Estate
unless a declaration of acceleration of the Notes has been made. Any provision
of the Lease, the Note Indentures or any other Operative Document to the
contrary notwithstanding, the Note Trustee shall not foreclose the lien of the
Note Indenture or of the Mortgage or otherwise exercise remedies that would
result in the exclusion of the appropriate Owner Trustee from the Note Trust
Estate, the Property or any substantial part of either as a result of any Note
Indenture Event of Default that arises solely by reason of one or more events or
circumstances that constitute a Lease Event of Default, unless the Note Trustee
has taken or is concurrently taking action under the applicable Lease to
dispossess Kmart, to terminate the applicable Lease or to effect any comparable
remedy thereunder.
Upon the occurrence and continuation of any Note Indenture Event of
Default, the Note Trustee may, and upon the request of a Note Majority in
Interest shall, (i) direct payment to it of all monies and enforce any agreement
or undertaking constituting a part of the related Note Trust Estate by any
action, suit, remedy or proceeding authorized or permitted by the related Note
Indenture or by law or by equity, and whether for the specific performance of
any agreement contained in such Note Indenture or for an injunction against the
violation of any of the terms thereof, (ii) enforce the liens and security
interests (a) granted by such Note Indenture on all or any part of the related
Note Trust Estate and (b) on all collateral securing the Notes by foreclosure, a
sale or action on the Notes or any other remedy available to it under applicable
law (subject to the rights of Kmart under the Lease) and (iii) sell, assign,
transfer and deliver, from time to time to the extent and in the manner
permitted by applicable law, all or any part of the related Note Trust Estate or
any interest therein, on such terms as the Note Trustee, in its discretion as
attorney-in-fact, may determine, or as may be required by applicable law. The
Note Trustee and any of the holders of the Notes may purchase property sold out
of the Note Trust Estate at any of the foregoing sales and may, if permitted by
applicable law, make a credit bid therefor in an amount of up to the aggregate
amount of all sums due under their respective Notes and the Note Indenture
(including, in the case of the Note Trustee, a credit bid therefor in an amount
of up to the aggregate amount due with respect to all of the outstanding Notes).
The Note Trustee may exercise any other right or remedy that may be
available to it under applicable law or proceed by appropriate court action to
enforce the terms of the Note Indentures or to recover damages for the breach
thereof. So long as the Issuer is the registered holder of any Note, none of the
Note Trustee, the Owner Trustee, or the Owner Participant is authorized or
empowered to acquire title to any portion of the Note Trust Estate or to take
any action with respect to all or any portion of the Note Trust Estate if such
acquisition or action would cause any of the REMICs to fail to qualify as a
"real estate mortgage investment conduit" for federal income tax purposes.
Upon the request of a Note Majority in Interest, the Note Trustee shall
waive any past defaults that could result in a Note Indenture Event of Default
and their consequences and upon any such waiver such defaults shall cease to
exist, and any Note Indenture Events of Default arising therefrom shall be
deemed to have been cured, but no such waiver shall extend to any subsequent or
other default or impair any right with respect to
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such subsequent or other default; provided, however, that in the absence of
written instructions from the holders of all related Notes then outstanding, the
Note Trustee shall not waive any such default in the payment of the principal
of, premium, if any, or interest on, or other amounts due under, any related
Note then outstanding, or in respect of a covenant or provision thereof that
cannot be modified or amended without the consent of each holder of a related
Note.
In the event of any default by Kmart in the payment of any installment of
basic rent the appropriate Owner Trustee or the Owner Participant, without the
consent of the Note Trustee or any holder of the Notes, may pay to the Note
Trustee a sum equal to the amount of all (but not less than all) principal and
interest as shall then be due and payable on the Notes secured by the related
Property, together with any interest on account of such payment being overdue.
However, the prior sentence shall not apply to any default by Kmart in the
payment of any installment of basic rent due under the Lease, if default by
Kmart in the payment of three or more consecutive installments of basic rent, or
in the payment of a total of six or more installments of basic rent, shall have
been cured by the appropriate Owner Trustee or the Owner Participant pursuant to
the foregoing sentence. In the event that such Owner Trustee or the Owner
Participant shall pay such amounts to the Note Trustee in satisfaction of
Kmart's obligation, no Note Indenture Event of Default has occurred and is
continuing and in the event that Kmart subsequently pays such amounts to the
Note Trustee, the Note Trustee will release such amounts received from Kmart to
the Owner Trustee or the Owner Participant. In the event of any default by Kmart
in the performance of any obligation under the corresponding Lease (other than
the obligation to make Rental Payments) or any other Operative Document, the
appropriate Owner Trustee or the Owner Participant, without the consent of the
Note Trustee or any holder of the Notes, may exercise rights under the
corresponding Lease to perform such obligation on behalf of Kmart. Solely for
the purpose of determining whether there exists a Note Indenture Event of
Default, (i) any such payment by such Owner Trustee or the Owner Participant
shall be deemed to remedy any default by Kmart in the payment of Rental Payments
theretofore due and payable and to remedy any default by such Owner Trustee in
the payment of any amount due and payable under the related Notes and (ii) any
such performance by such Owner Trustee or the Owner Participant of any
obligation of Kmart under such Lease or other related Operative Document shall
be deemed to remedy any default by Kmart in the performance of such obligation
and to remedy any related default by the Owner Trustee under the related Note
Indenture.
DISCHARGE OF LIEN
Each Note Indenture will cease to be of further effect when, among other
things, (i) the principal of, premium, if any, and interest on all related Notes
has been paid, (ii) all related Notes have been delivered to the Note Trustee
for cancellation, or (iii) the relevant Owner Trust has deposited with the Note
Trustee in trust an amount sufficient to pay such Notes, including principal,
premium, if any, and interest to the date of such maturity or redemption,
together with all other sums then due and payable thereunder.
LIMITATION OF LIABILITY
The Notes are not direct obligations of, or guaranteed by, Kmart. None of
the Owner Trusts, the Owner Trustees, the Owner Participant or the Note Trustee,
or any affiliate thereof, shall be personally liable to any holder of a Note or
to the Note Trustee for any amounts payable under the Notes or for any liability
under such Note Indenture. All payments of principal, premium, if any, and
interest on the Notes issued with respect to any Property (other than payments
made in connection with a purchase of Notes by the Owner Participant) will be
made only from the assets subject to the lien of the Note Indenture or the
income and proceeds received by the Note Trustee therefrom (including Rental
Payments payable by Kmart under the related Lease).
AMENDMENTS
With the consent of a Note Majority in Interest, by directive delivered to
the Owner Trustee, Kmart and the Note Trustee, the Owner Trustee may, and the
Note Trustee shall, enter into one or more supplemental Note Indentures (each, a
"Supplemental Note Indenture") for the purpose of adding provisions or changing
the rights and obligations of the holders of the related Notes and of the Owner
Trustee under the Note
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Indenture; provided, however, that no such Supplemental Note Indenture shall (i)
be inconsistent with the rights of Kmart under the Lease or (ii) without the
consent of the holder of each outstanding Note affected thereby: change the
stated maturity or any date for payment of the principal of, or any installment
of interest on, or the dates or circumstances of payment of the premium, if any,
on, any Note; reduce the principal amount, interest on or any amount payable
upon the redemption of any Note, or change the circumstances for redemption
thereof; impair the right to institute suit for the enforcement of any such
payment; permit the creation of any lien prior to or pari passu with the lien of
the Note Indenture; terminate the lien of the Note Indenture; deprive any holder
of any Note of the security afforded by the lien of the Note Indenture;
terminate the Lease; reduce the amounts payable under the Lease or change the
time for the payment thereof so that such payments are less than the amounts
necessary to pay when due the principal of, premium, if any, and interest on the
outstanding Notes; reduce the percentage in principal amount of the outstanding
Notes of all series, the consent of whose holders is required for any such
Supplemental Note Indenture, or the consent of whose holders is required for any
waiver; modify any of the provisions with respect to Supplemental Note
Indentures, except to further restrict such provisions; or cause any Note to
fail to be a "qualified mortgage" within the meaning of Section 860G(a)(3) of
the Code with respect to the related REMIC. Promptly after the execution of any
such Supplemental Note Indenture, the Note Trustee shall transmit a written
notice to each holder of a related Note setting forth in general terms the
substance of such Supplemental Note Indenture.
Without the consent of any of the holders of the related Notes, each of the
Owner Trustee and the Note Trustee shall enter into one or more Supplemental
Note Indentures, provided such Supplemental Note Indenture (i) is not
inconsistent with the rights of Kmart under the Lease or (ii) except with the
consent of the holders of all related Notes then outstanding if as a result
thereof the amounts payable to the Owner Trustee under the Lease and assigned to
the Note Trustee hereunder shall not be sufficient to pay when due the principal
of, premium, if any, and interest on all outstanding Notes, for the following
purposes: to evidence the succession of another corporation to the rights,
interests and obligations of Kmart or to evidence the succession of another
corporation to the rights, interests and obligations of the Owner Trustee under
the related Note Indenture and the related Notes; to subject additional property
to the lien of the Note Indenture; to modify, eliminate or add to the provisions
of the Note Indenture to such extent as shall be necessary to qualify the Note
Indenture (including any Supplemental Note Indenture) under the Trust Indenture
Act of 1939; to cure any ambiguity or correct any inconsistency in such Note
Indenture; to evidence the succession of a new Note Trustee thereunder or add a
co-trustee or separate trustee; to make any other amendments or provisions with
respect to matters or questions arising under the Note Indenture which shall not
be inconsistent with the provisions of the Note Indenture, provided that such
amendment or provision shall not adversely affect in any material respect the
interest of the holders of the related Notes; or to make such other amendments
or provisions as are necessary to protect the REMIC status of the REMICs.
THE NOTE TRUSTEE
The Bank of New York, a New York banking corporation, will act as Note
Trustee. Kmart may from time to time have banking relations with the Note
Trustee in the ordinary course of business.
The Note Indenture provides that in the case of any Note Indenture Event of
Default, the Note Trustee will exercise such of the rights and powers vested in
it by the Note Indenture, and will use the same degree of care and skill in its
exercise thereof as a prudent person would exercise under the circumstances in
the conduct of his or her own affairs. The Note Trustee will not be liable for
any error of judgment made in good faith (unless the Note Trustee is negligent
in ascertaining the pertinent facts) or any action taken or omitted to be taken
by it in good faith in accordance with the direction of a Note Majority in
Interest. Subject to such provision, the Note Trustee will be under no
obligation to exercise any of the rights and powers granted it under the Note
Indenture at the request of any holder of the Notes if the Note Trustee
determines in good faith that such action would involve it in personal
liability.
The Note Trustee may rely upon, and shall be protected in acting or
refraining from acting in reliance upon, any paper or document delivered by it
to be genuine and to have been signed or presented by the proper party or
parties. The Note Trustee shall be under no obligation to exercise any of the
rights or powers vested in
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it by the Note Indenture at the request or direction of any of the holders of
the Notes unless such holders shall have offered to the Note Trustee reasonable
security or indemnity (including, without limitation, the advancement of monies
for out-of-pocket costs) against the costs, expenses and liabilities which might
be incurred by it in compliance with such request or direction. The Note Trustee
shall not be bound to make any investigation into the facts or matters stated in
any document but may, in its discretion, make such further inquiry or
investigation into such facts or matters as it may see fit. If the Note Trustee
shall determine to make such further inquiry or investigation, it shall be
entitled to examine the relevant books, records and premises of the appropriate
Owner Trustee, personally or by agent or attorney. The Note Trustee may execute
any of the trusts or powers under the Note Indenture or perform any duties
thereunder either directly or indirectly or by or through agents or attorneys,
and the Note Trustee shall not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed by it with due care.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of the anticipated material federal
income tax consequences of the purchase, ownership, and disposition of the
Bonds. The discussion does not purport to deal with the federal income tax
consequences to all categories of investors, some of which may be subject to
special rules. The discussion focuses primarily on investors who will hold the
Bonds as "capital assets" (generally, property held for investment) within the
meaning of Section 1221 of the Code, but much of the discussion is applicable to
other investors as well. Investors should note that, although final regulations
recently were released under the REMIC provisions of the Code (the "REMIC
Regulations") by the United States Treasury Department (the "Treasury"), no
currently effective regulations or other administrative guidance has been issued
with respect to certain provisions of the Code that are or may be applicable to
the Bonds. Furthermore, the REMIC Regulations do not address many of the issues
that arise in connection with the formation and operation of a REMIC. In
addition, substantial uncertainty exists with respect to the application to the
Bonds of the guidance provided by the Treasury on original issue discount
("OID"). Hence, definitive guidance cannot be provided with respect to many
aspects of the tax treatment of the Bonds. Moreover, the summary is based on
current law, and there can be no assurance that the Internal Revenue Service
(the "IRS") will not take positions that would be materially adverse to
investors. Finally, the summary does not purport to address the anticipated
state or local income tax consequences to investors of owning and disposing of
the Bonds. Consequently, investors should consult their own tax advisors in
determining the federal, state or local, foreign, and any other tax consequences
to them of the purchase, ownership, and disposition of the Bonds.
For purposes of this discussion under "Certain Federal Income Tax
Considerations," the Series AR Bonds, Series BR Bonds, and Series CR Bonds are
not included within the term "Bonds."
REMIC QUALIFICATION
Elections will be made to treat each of three separate Asset Pools,
consisting principally of the Series A Notes, Series B Notes, and Series C
Notes, as three separate REMICs (the Pool A REMIC, the Pool B REMIC and the Pool
C REMIC, respectively) within the meaning of Code Section 860D. Hunton &
Williams, special tax counsel, will deliver its opinion on the Closing Date,
subject to the assumptions and representations set forth therein, that the Bonds
will constitute "regular interests" in their respective REMICs for federal
income tax purposes.
In order for an Asset Pool to be eligible for REMIC status, substantially
all of the assets of the Asset Pool must consist of "qualified mortgages" and
"permitted investments" as of the close of the third month beginning after the
closing date and at all times thereafter (the "Asset Qualification Test"). A
REMIC will be deemed to satisfy the Asset Qualification Test if no more than a
de minimis amount of its assets (i.e., assets with an aggregate adjusted basis
that is less than one percent of the aggregate adjusted basis of all the REMIC's
assets) are assets other than qualified mortgages and permitted investments. A
qualified mortgage is any obligation that is principally secured by an interest
in real property and that is either transferred to the REMIC on the closing date
or purchased by the REMIC pursuant to a fixed price contract within a three-
month period thereafter. Because the Notes are principally secured by the
related Properties and will be
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acquired by the REMICs on the Closing Date, they will be considered "qualified
mortgages" for purposes of the REMIC Provisions of the Code.
Permitted investments include cash-flow investments, foreclosure property,
and qualified reserve assets. Cash-flow investments are investments of amounts
received with respect to qualified mortgages for a temporary period (not to
exceed 13 months) before distribution to holders of regular or residual
interests in the REMIC. The cash flow and investment procedures to be followed
under the Bond Indenture with respect to each REMIC will be structured to meet
the requirements for cash-flow investments. Foreclosure property generally is
property acquired by a REMIC in connection with the default or imminent default
of a qualified mortgage. Foreclosure property may not be held for more than two
years, unless it is established to the satisfaction of the Treasury that an
extension of the two-year period is necessary for the orderly liquidation of the
foreclosure property. The Treasury may grant one or more extensions, but any
such extension will not extend the grace period beyond the date that is six
years after the date such foreclosure property is acquired. Qualified reserve
assets are intangible investment assets (other than REMIC residual interests)
that are part of a reasonably required reserve (a "Qualified Reserve Fund")
maintained by the REMIC to provide for full payment of expenses of the REMIC or
amounts due on the regular interests in the event of defaults or delinquencies
on qualified mortgages, lower than expected returns on cash-flow investments, or
interest shortfalls on qualified mortgages caused by prepayments of those
mortgages. Each Asset Pool may contain a reserve fund for payment of the
expenses of the related REMIC (although the assets of such funds cannot be used
for the payment of principal of and interest on the Bonds). Any such reserve
fund will be designed to be a Qualified Reserve Fund.
In addition to the foregoing asset qualification requirements, the various
interests in a REMIC also must satisfy certain conditions. Each of the interests
in a REMIC must be issued on the closing date (or within a specified 10-day
period) and belong to either of the following: (i) one or more classes of
regular interests or (ii) a single class of residual interests on which
distributions are made pro rata. A REMIC interest qualifies as a regular
interest if (i) it is issued on the startup day with fixed terms, (ii) it is
designated as a regular interest, (iii) it entitles its holder to a specified
principal amount and (iv) if it pays interest, which such interest either (a)
constitutes a specified non-varying portion of the interest on one or more of
the REMICs' qualified mortgages, (b) is payable at a fixed rate with respect to
the principal amount of the regular interest or (c) to the extent permitted
under the REMIC Regulations, is payable at a variable rate with respect to such
principal amount. Interest is payable at a single fixed rate on the Bonds.
Although the Make-Whole Premium potentially is payable with respect to the
Bonds, the REMIC Regulations provide that the payment on REMIC interests of
customary prepayment penalties received by the REMIC on its mortgage loans does
not prevent such interests from meeting the definition of REMIC regular
interests. Based on inquiries into the customary practices in the lending market
for long-term, fixed-rate commercial mortgage loans, the Issuer believes that
the Make-Whole Premium is a customary prepayment penalty.
The Series A Bonds, Series B Bonds and Series C Bonds will constitute a
single class of "regular interests" in the Pool A REMIC, Pool B REMIC and Pool C
REMIC, respectively. The Series AR Bonds, Series BR Bonds and Series CR Bonds
will constitute a single class of "residual interests" in the Pool A REMIC, Pool
B REMIC and Pool C REMIC, respectively. Thus, each of the REMICs will have a
single class of regular interests and a single class of residual interests.
STATUS OF REGULAR BONDS FOR VARIOUS PURPOSES
Bonds held by a Thrift Institution will constitute "qualifying real
property loans" within the meaning of Code Section 593(d)(1) to the extent and
in the same proportion that the assets of the related REMIC would be so treated.
Bonds held by a REIT will constitute "real estate assets" within the meaning of
Code Section 856(c)(5)(A), and interest on the Bonds will be considered
"interests on obligations secured by mortgages on real property or on interests
in real property" within the meaning of Code Section 856(c)(3)(B) to the extent
that and in the same proportion that, for both purposes, the assets and income
of the assets of the related REMIC qualify for each of the foregoing treatments.
If 95 percent or more of the assets of a REMIC constitute qualifying assets for
Thrift Institutions and REITs, the related Bonds will qualify for the
corresponding status in their entirety. It is anticipated that 95 percent or
more of the assets of the REMICs
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will constitute such qualifying assets. Bonds held by a RIC will not constitute
"Government securities" within the meaning of Code Section 851(b)(4)(A)(i), nor
will they constitute assets set forth in Code Section 7701(a)(19)(C) for
domestic building and loan associations. Bonds held by certain financial
institutions will constitute an "evidence of indebtedness" within the meaning of
Code Section 582(c)(1).
EFFECT OF REMIC DISQUALIFICATION
If a REMIC failed to comply with one or more of the ongoing requirements of
the Code for REMIC status during one taxable year, the REMIC would not be
treated as a REMIC for such year and thereafter. If the REMIC status of an Asset
Pool were lost, the treatment of the Asset Pool and the related Bonds for
federal income tax purposes would be uncertain. The former REMIC might be
entitled to treatment as a grantor trust under the Code, in which case no
entity-level tax would be imposed on the former REMIC. However, there can be no
assurance that, in the event of REMIC disqualification, each Asset Pool or the
assets of the Issuer would not be treated as a taxable mortgage pool under Code
Section 7701(i) or an association taxable as a corporation, in which case part
or all of the income derived from the Notes likely would be subject to corporate
income tax before any distributions could be made to Bond Owners. The Code
authorizes the Treasury to issue regulations that address situations where a
failure to meet one or more of the requirements for REMIC status occurs
inadvertently and in good faith, and disqualification of a REMIC would occur
absent regulatory relief. Such regulations have not yet been issued. Investors
should be aware that any relief may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC's income for the
period of time in which the requirements for REMIC status are not satisfied.
REMIC-LEVEL TAXES
Income from the "prohibited transactions" of a REMIC are taxed directly to
the REMIC at a 100% rate. Net income from one prohibited transaction may not be
offset by losses from other prohibited transactions. Prohibited transactions
generally include: (i) the disposition of qualified mortgages other than
pursuant to (a) the repurchase of a defective mortgage, (b) the substitution for
a defective mortgage within two years of the Closing Date, (c) a substitution
for any qualified mortgage within three months of the Closing Date, (d) the
foreclosure, default, or imminent default of a qualified mortgage, (e) the
bankruptcy or insolvency of the REMIC or (f) a qualified liquidation of the
REMIC; (ii) the receipt of income from assets that are not the type of mortgages
or investments that a REMIC is permitted to hold; (iii) the receipt of
compensation for services by the REMIC; and (iv) the receipt of gain from
disposition of cash-flow investments other than pursuant to a qualified
liquidation of the REMIC. A disposition of a qualified mortgage or cash-flow
investment will not give rise to a prohibited transaction, however, if the
disposition is required to prevent default on a regular interest resulting from
a default on one or more of the REMIC's qualified mortgages. The REMIC
Regulations also provide that the modification of a mortgage loan generally will
not be treated as a disposition of that loan if it is occasioned by a default or
a reasonably foreseeable default, an assumption of the mortgage loan, or the
waiver of a due-on-sale or encumbrance clause.
In addition, a REMIC generally is subject to tax at a 100% rate on any
contribution to the REMIC after the Closing Date unless such contribution is a
cash contribution that (i) takes place within the three-month period beginning
on the Closing Date, (ii) is made to facilitate a qualified liquidation, (iii)
is a payment in the nature of a guarantee, (iv) constitutes a contribution by
the holders of the Residual Bonds to a Qualified Reserve Fund for the payment of
REMIC expenses or (v) is otherwise permitted by Treasury regulations yet to be
issued. The structure and operation of the REMICs generally will be designed to
avoid the imposition of both the 100% tax on contributions and the 100% tax on
prohibited transactions.
To the extent that a REMIC derives certain types of income from foreclosure
property (generally, income relating to dealer activities of the REMIC), it will
be taxed on such income at the highest corporate income tax rate. It is not
anticipated that any of the REMICs will receive significant amounts of such
income.
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CURRENT INCOME ON THE BONDS
General
The Bond Trustee will report annually to the IRS and to Bondholders of
record with respect to income accrued on the Bonds. In doing so, the Bond
Trustee will rely on determinations of income made by the Tax Administrator.
Accrual of Income
Overview. The amount of income recognized in any period by the original
purchaser of a Bond will equal the amount of interest accrued on such Bond in
accordance with its terms. Bond Owners must use the accrual method of accounting
with respect to their income on the Bonds, even if they otherwise use the cash
method.
Under Code Section 1272(a)(6), which applies to the Bonds, the income
accrual on such Bonds is determined under a constant yield method that reflects
compounding and that takes into account the prepayment rate for the Notes
assumed in pricing the Bonds (the "Pricing Prepayment Assumption"). As a
technical matter, the income on a Bond may be characterized as OID income rather
than interest income, because of the possibility that the Make-Whole Premium
will be paid on the Bonds. However, the prepayment assumption used in pricing
the Bonds reflects the expectation that no prepayments would occur on the Notes.
Therefore, the Tax Administrator does not intend to take into account any
projected payments arising from a Make-Whole Premium in computing the yield on a
Bond. Consequently, the yield that the Tax Administrator will use in reporting
the taxable income on a Bond will equal its stated rate of interest. If a
Make-Whole Premium becomes payable, the Bond Owner must include such premium in
its taxable income on the date on which the fact and amount of such Make-Whole
Premium is determinable.
The Treasury recently issued new final regulations relating to OID (the
"Final Regulations"), replacing a set of proposed regulations issued in 1992
(the "Proposed Regulations"). Although the Final Regulations do not become
effective for instruments issued before April 4, 1994, the Treasury has
indicated that taxpayers may rely on the Proposed Regulations with respect to
debt instruments issued before that date but after December 21, 1992. Neither
the Final Regulations nor the Proposed Regulations, however, provide guidance
directly applicable to instruments, such as the Bonds, that are governed by Code
section 1272(a)(6). Nonetheless, under either set of regulations, the Bonds (i)
could be considered as issued with OID equal to the difference between the issue
price of such Bonds and the total amount of payments (including both principal
and interest) expected to be received thereon and (ii), as a technical matter,
would be subject to the rules applicable to instruments providing for contingent
payments.
Neither the Proposed Regulations nor the Final Regulations replaced
existing proposed regulations dating from 1986 that relate to the treatment of
contingent payments (the "Original Contingent Payment Rules"). The Treasury
recently did release new proposed regulations relating to the accrual of income
on debt instruments that provide for one or more contingent payments (the
"Unofficial Contingent Payment Regulations"). Although the Unofficial Contingent
Payment Regulations were intended to replace the Original Contingent Payment
Rules, the Unofficial Contingent Payment Regulations were withheld from
publication pursuant to a request issued by President Clinton to allow for
review by appropriate officials appointed by the Clinton administration.
Accordingly, the Unofficial Contingent Payment Regulations have not yet been
formally proposed, and there can be no assurance that they ultimately will be
issued in their current form. However, assuming that the Bonds are sold at par,
the income of an original purchaser of a Bond in any period should be the same
under both the Unofficial Contingent Payment Regulations and the Original
Contingent Payment Rules.
Subsequent Owners. Under current law, a subsequent purchaser could acquire
a Bond with market discount or amortizable premium. For purposes of determining
market discount or amortizable premium, the Original Contingent Payment Rules
provide that the Make-Whole Premium be separated from the remainder of the Bond
(the "Non-Contingent Component"). If a subsequent purchaser were to acquire a
Bond for less than its outstanding principal balance, it would be treated as
having acquired the Non-Contingent Component with market discount. Market
discount would accrue currently at a constant yield based on the Pricing
41
<PAGE> 43
Prepayment Assumption, but would be included in such purchaser's income in a
particular period only to the extent that such purchaser receives principal
payments in such period. If a subsequent purchaser were to acquire a Bond for a
price greater than its outstanding principal balance, it would be deemed to have
acquired the Non-Contingent Component with amortizable premium, which it could
use to offset its interest income over the life of the Bond. Such premium would
accrue under the constant yield method, based on the Pricing Prepayment
Assumption. Under the Original Contingent Payment Rules, a subsequent purchaser
of a Bond would include any Make-Whole Premium in its taxable income when the
fact and amount of the Make-Whole Premium became determinable, regardless of
whether it had acquired the Bond with market discount or amortizable premium.
Under the Unofficial Contingent Payment Regulations, a subsequent Bond
Owner would be treated, for purposes of computing its income thereon, as if it
were an initial purchaser, and neither the market discount nor the amortizable
premium rules would apply. However, because the Unofficial Contingent Payment
Regulations would be inconsistent with current law with respect to the treatment
of market discount and amortizable premium, it is not anticipated that such
Regulations, if finalized, would apply retroactively.
In view of the complexities and current uncertainties as to income
inclusions with respect to the Bonds, particularly with respect to the
contingent payment accounting rules that might apply, each investor should
consult its own tax advisor to determine the appropriate amount and method of
income inclusion on such Bonds for federal income tax purposes.
GAIN OR LOSS ON DISPOSITION
If a Bond is sold, the Bond Owner thereof will recognize gain or loss equal
to the difference between the amount realized on the sale and its adjusted basis
in the Bond. The adjusted basis of a Bond generally will equal its cost to the
Bond Owner, increased by any OID or market discount previously includible in
such Bond Owner's gross income with respect to the Bond (including any interest
income technically characterized as OID), and reduced by the portion of the
basis of the Bond allocable to payments on the Bond previously received by such
Bond Owner. Under current law, any gain on the sale of a Bond would be ordinary
income to the extent of accrued but unrecognized market discount but otherwise
would be capital gain to a Bond Owner who holds such Bond as a capital asset.
Any gain on the sale or disposition of a Bond generally would be treated as
ordinary interest income under the Unofficial Contingent Payment Regulations,
but, since such regulations would be inconsistent with current law with respect
to the characterization of gain, such Regulations, if finalized, would not be
expected to apply retroactively to the Bonds. Any loss on the disposition of a
Bond generally would be a capital loss to a Bond Owner who holds such Bond as a
capital asset. However, any gain or loss on the disposition of a Bond by a Bond
Owner that is a bank, thrift, or similar institution described in Code Section
582 would be treated as ordinary gain or loss.
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES
Bond Owners that are individuals, estates, or trusts, including those that
own such Bonds indirectly through certain pass-through entities, will be subject
to limitations with respect to certain itemized deductions described in Code
Section 67, to the extent that such deductions, in the aggregate, do not exceed
two percent of the holder's adjusted gross income. Because each of the REMICs
will be considered as a "single-class REMIC" under temporary Treasury
regulations, each Bond Owner will be allocated a share of the related REMIC's
"allocable investment expenses", which will be subject to those limitations.
Those expenses will consist principally of the fees paid to the Bond Trustee and
the Tax Administrator (insofar as such fees are attributable to the related
REMIC) but also may include extraordinary expenses of the related REMIC if such
expenses arise. The Bond Trustee or the Tax Administrator will provide each Bond
Owner with an annual statement indicating such Bond Owner's proportionate share
of the expenses of the Bond Trustee and the Tax Administrator under the Bond
Indenture. To the extent that the income reported to the Bond Owner was grossed
up for such expenses, the Bond Owner may deduct its share of such expenses
subject to the limitations described in this paragraph. To the extent that the
income reported to the Bond Owner was net of such expenses, the Bond Owner will
be required to increase its taxable income by expenses disallowed under such
limitations. Furthermore, itemized deductions of individual Bond Owners will be
reduced by the lesser of
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<PAGE> 44
(i) 3% of the excess of adjusted gross income over $100,000 ($50,000 in the case
of a married individual filing a separate return for taxable year 1991 and
adjusted for inflation each year thereafter) or (ii) 80% of such itemized
deductions otherwise allowable. As a result, such Bond Owners may have aggregate
taxable income in excess of the aggregate amount of interest payments received
on their Regular Bonds. Investors who are individuals, trusts, or estates should
consult their own advisors as to the suitability of an investment in the Regular
Bonds.
ADMINISTRATIVE MATTERS
The Tax Administrator will prepare the required federal, state, and local
income tax and information returns for the REMICs, which will be filed by the
Issuer. The REMICs will be subject to the procedural and administrative rules of
the Code applicable to partnerships, including the determination of any
adjustments to, among other things, items of REMIC income, gain, loss,
deduction, or credit by the IRS in a unified administrative proceeding. The Tax
Administrator will hold a Residual Bond in each REMIC and will act as the
REMIC's "tax matters person" to represent that REMIC as a whole for certain
administrative and judicial purposes. If the Tax Administrator ceases to hold a
Residual Bond or is removed as tax matters person, the tax matters person will
be the owner of Residual Bonds chosen by the holders of the majority in interest
of the Residual Bonds or by the IRS.
TAXATION OF CERTAIN FOREIGN INVESTORS
Income on Bonds of Bond Owners who are "non-U.S. persons" (as defined
below) generally will be considered "portfolio interest" and, therefore,
generally will not be subject to 30% United States withholding tax, provided
that such foreign person (i) is not a "10-percent shareholder" in the Issuer
within the meaning of Code Section 871(h)(3)(B) or a controlled foreign
corporation described in Code Section 881(c)(3)(C) that is related to the Issuer
and (ii) provides the Bond Trustee or the person who otherwise would be required
to withhold tax from such income (the "Withholding Agent") with an Internal
Revenue Service Form W-8 or a substitute statement, signed under penalties of
perjury, identifying the beneficial owner and stating, among other things, that
the beneficial owner of the Bond is a non-U.S. person (a "Foreign Person
Certification"). If a Foreign Person Certification is not provided, a 30%
withholding tax will apply unless it is reduced or eliminated pursuant to an
applicable tax treaty or unless the income on the Regular Bond is effectively
connected with the conduct of a trade or business within the United States by
such non-U.S. person. In the case of an applicable tax treaty, the Bond Owner
must provide the Withholding Agent with an Internal Revenue Service Form 1001.
In the case where the income on a Bond is effectively connected with the conduct
of a United States trade or business, the Bond Owner must provide the
Withholding Agent with an Internal Revenue Service Form 4224 and will be subject
to United States federal income tax at regular rates. For the purposes of this
discussion, the term "non-U.S. person" means any person other than a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust that is subject to United States
federal income tax regardless of the source of its income.
Recently enacted tax legislation denies portfolio interest treatment to
certain types of contingent interest. That legislation should not apply to
Make-Whole Premiums received by a non-U.S. person, based upon an exception for
contingent payments the amount of which is determined with reference to the
current yield on publicly traded property. However, the scope of the new
legislation is not entirely clear. Investors who are non-U.S. persons should
consult their own tax advisors regarding the specific tax consequences to them
of potential Make-Whole Premium payments with respect to a Bond.
BACKUP WITHHOLDING
Under federal income tax law, a Bond Owner may be subject to "backup
withholding" under certain circumstances. Backup withholding may apply to a Bond
Owner that is a United States person if the Bond Owner, among other things, (i)
fails to furnish its social security number or other taxpayer identification
number ("TIN") to the Withholding Agent, (ii) furnishes the Withholding Agent
with an incorrect TIN, (iii) fails to report properly interest and dividends or
(iv) under certain circumstances, fails to provide the
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<PAGE> 45
Withholding Agent with a certified statement, signed under penalties of perjury,
that the TIN provided to the Withholding Agent is correct and that the Bond
Owner is not subject to backup withholding. Backup withholding may apply, under
certain circumstances, to a Bond Owner that is a foreign person if the Bond
Owner fails to provide the Withholding Agent with a Foreign Person
Certification. Backup withholding applies to "reportable payments", which
include, in the case of the Bonds, all payments to the extent of accrued OID, as
well as distributions of proceeds from a sale of the Bonds. The backup
withholding rate is 31%. Backup withholding, however, does not apply to payments
on a Bond made to certain exempt recipients, such as tax-exempt organizations,
and to certain non-U.S. persons. Bond Owners should consult their tax advisors
for additional information concerning the potential application of backup
withholding to payments received by them with respect to a Bond.
DUE TO THE COMPLEXITY OF THESE RULES AND THE CURRENT UNCERTAINTY AS TO THE
MANNER OF THEIR APPLICATION TO THE BONDS, IT IS PARTICULARLY IMPORTANT THAT
POTENTIAL INVESTORS CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX TREATMENT
OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE BONDS.
ERISA CONSIDERATIONS
ERISA imposes certain restrictions on employee benefit plans subject
thereto ("Plans"), and on persons who are parties in interest or disqualified
persons with respect to such Plans, that may apply to a Plan's proposed
investment in the Bonds. Certain employee benefit plans, such as governmental
plans and church plans (if no election has been made under Section 410(d) of the
Code), are not subject to the restrictions of ERISA, and assets of such plans
may be invested in the Bonds without regard to the ERISA considerations
described below, subject to other applicable federal and state law. However, any
such governmental or church plan which is qualified under Section 401(a) of the
Code and exempt from taxation under Section 501(a) of the Code is subject to the
prohibited transaction rules set forth in Section 503 of the Code.
Investments by Plans are subject to ERISA's general fiduciary requirements,
including the requirement of investment prudence and diversification and the
requirement that a Plan's investments be made in accordance with the documents
governing the Plan.
Any Plan fiduciary that proposes to cause a Plan to acquire any of the
Bonds should consult with its counsel with respect to the potential consequences
under ERISA and the Code of the Plan's acquisition and ownership of such Bonds.
The U.S. Department of Labor has granted to Bear, Stearns & Co. Inc. (the
"Underwriter") an administrative exemption (Prohibited Transaction Exemption
90-30; Exemption Application No. D-8207, 55 Fed. Reg. 21,461 (1990)) (the
"Exemption") from certain of the prohibited transaction rules of ERISA and the
related excise tax provisions of Section 4975 of the Code with respect to the
initial purchase, the holding and the subsequent resale by Plans of certificates
denominated as debt instruments representing interests in a REMIC, such as the
Asset Groups (as defined and established in the Bond Indenture), and are issued
by and are debt obligations of such REMICs that consist of certain receivables,
loans and other obligations ("Collateral") that meet the conditions and
requirements of the Exemption. The Exemption covers collateral such as the
Notes.
Among the conditions that must be satisfied for the Exemption to apply are
the following:
(i) the acquisition of the Bonds by a Plan is on terms (including the
price for the Bonds) that are at least as favorable to the Plan as they
would be in an arm's-length transaction with an unrelated party;
(ii) the rights and interests evidenced by the Bonds acquired by the
Plan are not subordinated to the rights and interests evidenced by other
Bonds;
(iii) the Bonds acquired by the Plan have received a rating at the
time of such acquisition that is one of the three highest generic rating
categories from any of Standard & Poor's Corporation ("S&P"),
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<PAGE> 46
Moody's Investors Service, Inc. ("Moody's"), Duff & Phelps Inc. ("D&P") or
Fitch Investors Service, Inc. ("Fitch");
(iv) the Bond Trustee must not be an affiliate of any member of the
Restricted Group (as defined below);
(v) the sum of all payments made to and retained by the Underwriter in
connection with the distribution of the Bonds represents not more than
reasonable compensation for underwriting the Bonds; the sum of all payments
made to and retained by the Issuer pursuant to the Note Assignment
represents not more than the fair market value of such collateral; and the
sum of all payments made to and retained by the Note Trustee and Bond
Trustee represent not more than reasonable compensation for such persons'
services under the respective indenture and reimbursements of their
respective reasonable expenses in connection therewith; and
(vi) the Plan investing in the Bonds is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Commission under the
Securities Act.
Each REMIC must also meet the following requirements:
(i) the REMIC's assets must consist solely of assets of the type that
have been included in other investment pools;
(ii) certificates in such other investment pools must have been rated
in one of the three highest rating categories of S&P, Moody's, Fitch or D&P
for at least one year prior to the Plan's acquisition of Bonds; and
(iii) certificates evidencing interests in such other investment pools
must have been purchased by investors other than Plans for at least one
year prior to any Plan's acquisition of Bonds.
Moreover, the Exemption may provide relief from certain
self-dealing/conflict of interest prohibited transactions that may occur when a
Plan fiduciary causes a Plan to acquire certificates in a trust in which the
fiduciary (or its affiliate) is an obligor on the receivables held in the trust;
provided that, among other requirements, (i) in the case of an acquisition in
connection with the initial issuance of certificates, at least 50 percent of
each class of certificates in which Plans have invested is acquired by persons
independent of the Restricted Group and at least 50 percent of the aggregate
interest in the trust is acquired by persons independent of the Restricted
Group; (ii) such fiduciary (or its affiliate) is an obligor with respect to five
percent or less of the fair market value of the Collateral contained in the
trust; (iii) the Plan's investment in certificates of any class does not exceed
25 percent of all of the certificates of that class outstanding at the time of
the acquisition; and (iv) immediately after the acquisition, no more than 25
percent of the assets of the Plan with respect to which such person is a
fiduciary are invested in certificates representing an interest in one or more
trusts containing assets sold or serviced by the same entity. The Exemption does
not apply to Plans sponsored by the Issuer, the Underwriter, the Bond Trustee,
the Note Trustee, any obligor with respect to Notes pledged to any of the REMICs
constituting more than five percent of the aggregate unamortized principal
balance of the assets of any of the REMICs, or any affiliate of such parties
(the "Restricted Group").
Prospective Plan investors should consult with their legal advisors
concerning the impact of ERISA and the Code, the applicability of the Exemption
or any other administrative exemption from the prohibited transaction provisions
of ERISA and the Code, and the potential consequences in their specific
circumstances, prior to making an investment in the Bonds. Moreover, each Plan
fiduciary should determine whether under the general fiduciary standards of
investment procedure and diversification an investment in the Bonds is
appropriate for the Plan, taking into account the overall investment policy of
the Plan and the composition of the Plan's investment portfolio.
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
dated as of March , 1994 (the "Underwriting Agreement"), among the Issuer,
Kmart and the Underwriter, the Issuer has agreed to sell to the Underwriter the
entire aggregate principal amounts of the Bonds set forth on the cover hereof.
In the Underwriting Agreement, the Underwriter has agreed, subject to the terms
and conditions set forth therein, to purchase all of the Bonds offered hereby if
any Bonds are purchased. In the event of a default by the Underwriter, the
Underwriting Agreement may be terminated. Kmart and the Issuer have been advised
by the Underwriter that the Underwriter proposes initially to offer the Bonds to
the public at the public offering prices set forth on the cover page of this
Prospectus, and to certain dealers at such prices less concessions not in excess
of [ ]% of the principal amount of the Series A Bonds, [ ]% of the principal
amount of the Series B Bonds and [ ]% of the principal amount of the Series C
Bonds. The Underwriter may allow and such dealers may reallow concessions not in
excess of [ ]% of the principal amount of the Series A Bonds, [ ]% of the
principal amount of the Series B Bonds and [ ]% of the principal amount of the
Series C Bonds. After the initial public offering, the public offering prices
and such concessions may be changed.
The Owner Participant has made available an amount equal to 2.0% of the
purchase price paid by the Owner Trusts to acquire their respective interests in
the Properties, a portion of which was used to pay certain transaction expenses
in connection with the Interim Financing and the remainder of which shall be
used to reimburse the Issuer and Kmart for underwriting discounts and
commissions and certain other transaction expenses in connection with the
offering of the Bonds . Kmart has agreed to pay First Fidelity Mortgage
Corporation ("First") and Winthrop Financial Associates ("Winthrop") a fee for
financial advisory services in an aggregate amount equal to 1.5% of the purchase
price paid by the Owner Trusts to acquire their respective interests in the
Properties. To the extent certain transaction expenses, including underwriting
discounts and commissions, exceed the amount reimbursable by the Owner
Participant, such excess will be paid by Kmart and offset against the financial
advisory fees payable to First and Winthrop.
Prior to their issuance there has been no market for the Bonds nor can
there be any assurance that one will develop or, if one does develop, that it
will provide Bond Owners with liquidity or it will continue for the life of the
Bonds. The Underwriter has advised Kmart that it intends to act as a market
maker in the Bonds, subject to applicable provisions of federal and state
securities laws and other regulatory requirements, but is under no obligation to
do so and any such market-making may be discontinued at any time.
The Underwriting Agreement provides that Kmart will indemnify the
Underwriter against certain civil liabilities, including liabilities under the
Securities Act, or contribute to payments the Underwriter may be required to
make in respect thereof.
LEGAL OPINIONS
Hunton & Williams, New York, New York has acted as special tax counsel to
Kmart, solely with respect to the discussion set forth in "CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS" herein. Certain legal matters will be passed upon for
Kmart by Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, Michigan and for
the Underwriter by Brown & Wood, New York, New York. Brown & Wood also has acted
as special counsel to the Issuer, solely with respect to the validity of the
Bonds offered hereby.
RATINGS
It is a condition to the issuance of the Bonds offered hereby that they be
rated at least "A3" by Moody's, "A-" by S&P and "A-" by D&P. A security rating
is not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating organization. Each
security rating should be evaluated independently of similar ratings on
different types of securities. The ratings take into account the structural and
legal aspects associated with the Bonds, the characteristics of the Leases, and
the credit quality of Kmart.
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As of March 11, 1994, Moody's Investors Service, Inc., ("Moody's"),
Standard and Poor's Ratings Group ("S&P") and Duff & Phelps Credit Rating Co.
("D&P") assigned the ratings of "A3", "A" and "A", respectively, to the senior
unsecured debt of Kmart. Both S&P and D&P have informed Kmart that they have
placed Kmart on their respective "credit watch" lists. There can be no assurance
that the ratings set forth above may not be changed by the respective rating
agency at any time.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Kmart for the year ended January
27, 1993, have been so incorporated in reliance on the report of Price
Waterhouse, independent accountants, given on the authority of said firm as
experts in auditing and accounting. The appraisals regarding the Properties
referenced in the Prospectus were prepared by Marshall and Stevens Incorporated,
independent appraisers.
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INDEX OF PRINCIPAL TERMS
Set forth below is a list of defined terms used in this Prospectus and the
pages on which the definitions of such terms may be found herein.
<TABLE>
<CAPTION>
TERM PAGE(S)
- --------------------------------------------------------------------------------- ----------
<S> <C>
Asset Pools...................................................................... 7
Asset Qualification Test......................................................... 38
Bankruptcy Code.................................................................. 19
Bond Indenture................................................................... 3
Bond Indenture Events of Default................................................. 28
Bond Majority in Interest........................................................ 25
Bond Owner....................................................................... 6
Bond Trustee..................................................................... Cover, 3
Bondholders...................................................................... 3
Bonds............................................................................ 3
Borders.......................................................................... 9
Cede............................................................................. 2
Closing Date..................................................................... 3
Code............................................................................. 7
Collateral....................................................................... 44
Collateral Assignments........................................................... 5
Commission....................................................................... 2
D&P.............................................................................. 45
Default Interest................................................................. 25
Default Rate..................................................................... 18
Definitive Bonds................................................................. 24
Discounted Basic Rents........................................................... 22
DTC.............................................................................. Cover, 6
ERISA............................................................................ 8
Estate for Years Interests....................................................... 6
Excepted Payments................................................................ 33
Excepted Rights.................................................................. 33
Exchange Act..................................................................... 2
Exemption........................................................................ 44
Final Regulations................................................................ 41
First............................................................................ 46
Fitch............................................................................ 45
Foreign Person Certification..................................................... 43
Indirect Participants............................................................ 24
Initial Noteholder............................................................... 6
Interim Financing................................................................ 6
IRS.............................................................................. 38
Issuer........................................................................... Cover, 3
Kmart............................................................................ Cover
Lease Event of Default........................................................... 6
Leasehold Estates................................................................ 6
Lease............................................................................ 6
Lease Assignment................................................................. 5
Leases........................................................................... Cover
Make-Whole Premium............................................................... 27
Moody's.......................................................................... 45
Mortgages........................................................................ 5
</TABLE>
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<TABLE>
<CAPTION>
TERM PAGE(S)
- --------------------------------------------------------------------------------- ----------
<S> <C>
Net Worth Standard............................................................... 20
New Proposed OID Regulations..................................................... 41
Non-Contingent Component......................................................... 41
Note Assignment.................................................................. 5
Note Indenture Events of Default................................................. 33
Note Indenture................................................................... 5
Note Majority in Interest........................................................ 33
Note Trustee..................................................................... 5
Note Trust Estate................................................................ 5
Notes............................................................................ Cover, 5
OID.............................................................................. 38
Options to Lease................................................................. 14
Original Contingent Payment Rules................................................ 41
Owner Participant................................................................ 5
Owner Trustee.................................................................... 5
Owner Trusts..................................................................... 5
Participants..................................................................... 23
Payment Date..................................................................... 3
Permitted Liens.................................................................. 19
Plans............................................................................ 44
Pledge........................................................................... 5
Pricing Prepayment Assumption.................................................... 41
Proceeds......................................................................... 7
Properties....................................................................... Cover, 6
Proposed Regulations............................................................. 41
Pool A REMIC..................................................................... Cover, 7
Pool B REMIC..................................................................... Cover, 7
Pool C REMIC..................................................................... Cover, 7
Qualified Reserve Fund........................................................... 39
Record Date...................................................................... 3
Registration Statement........................................................... 2
REIT............................................................................. 8
Remainder Purchaser.............................................................. 6
REMIC Regulations................................................................ 38
REMICs........................................................................... Cover, 7
Rental Payments.................................................................. 4
Residual Bonds................................................................... 7
Restricted Group................................................................. 45
Retirement Price................................................................. 21
RIC.............................................................................. 8
S&P.............................................................................. 45
Sale Agreement................................................................... 19
Sale-Leaseback Transactions...................................................... 5
Scheduled Payment Dates.......................................................... 32
Securities Act................................................................... 2
Series A Bonds................................................................... 3
Series B Bonds................................................................... 3
Series C Bonds................................................................... 3
Series A Notes................................................................... Cover, 5
Series B Notes................................................................... Cover, 5
Series C Notes................................................................... Cover, 5
Sinking Fund..................................................................... 3
</TABLE>
49
<PAGE> 51
<TABLE>
<CAPTION>
TERM PAGE(S)
- --------------------------------------------------------------------------------- ----------
<S> <C>
Supplemental Bond Indenture...................................................... 30
Supplemental Note Indenture...................................................... 37
Tax Administrator................................................................ 7
TCMYI............................................................................ 27
Thrift Institution............................................................... 7
TIN.............................................................................. 44
Treasury......................................................................... 38
Trust Agreement.................................................................. 5
Trust Indenture Act.............................................................. 29
Underwriter...................................................................... Cover, 44
Underwriting Agreement........................................................... 43
Unofficial Contingent Payment Regulations........................................ 39
Winthrop......................................................................... 43
Withholding Agent................................................................ 43
</TABLE>
50
<PAGE> 52
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY KMART OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF KMART SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................ 2
Reports to Bondholders by the
Bond Trustee....................... 2
Incorporation of Certain Documents by
Reference.......................... 2
Prospectus Summary................... 3
Kmart................................ 9
Summary of Consolidated
Financial Information.............. 11
Diagram of Transaction Structure..... 13
Structure of the Transaction......... 14
Use of Proceeds...................... 15
Description of the Properties........ 15
Description of the Leases............ 17
The Issuer and the Owner Trusts...... 23
Description of the Bonds............. 23
Description of the Notes............. 31
Certain Federal Income Tax
Considerations..................... 38
ERISA Considerations................. 44
Underwriting......................... 46
Legal Opinions....................... 46
Ratings.............................. 46
Experts.............................. 47
Index of Principal Terms............. 48
</TABLE>
UNTIL THE DATE 90 DAYS FROM THE DATE HEREOF, ALL DEALERS EFFECTING
TRANSACTIONS IN THE BONDS, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WHEN ACTING
AS UNDERWRITERS WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
$172,300,000
SECURED LEASE BONDS, SERIES A, B AND C
DUE, RESPECTIVELY, ,
AND
THE BONDS ARE PAYABLE FROM RENT
RELATING TO 24 PROPERTIES TO BE
PAID UNDER LEASES BY
KMART CORPORATION
--------------------
PROSPECTUS
--------------------
BEAR, STEARNS & CO. INC.
March , 1994
------------------------------------------------------
------------------------------------------------------
<PAGE> 53
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION.*
The following expenses are expected to be incurred in connection with this
Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............ $ 55,124.00
Printing Fee................................................... 144,000.00*
Blue Sky Fees and Expenses..................................... 25,000.00*
Accounting Fees................................................ 30,000.00*
Rating Agency Fees............................................. 205,000.00*
Legal Fees..................................................... 1,633,000.00*
Trustee's Fees and Expenses.................................... 55,000.00*
Financial Advisory Fees........................................ 1,000,000.00*
Miscellaneous.................................................. 50,000.00*
-------------
Total..................................................... $3,188,124.00*
-------------
-------------
</TABLE>
- -------------------------
* All of the above items except the registration fee are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's By-Laws and the Michigan Business Corporation Act permit
the Registrant's officers and directors to be indemnified under certain
circumstances for expenses and, in some instances, for judgments, fines or
amounts paid in settlement of civil, criminal, administrative and investigative
suits or proceedings, including those involving alleged violations of the
Securities Act of 1933 (the "Act"). In addition, the Registrant maintains
directors' and officers' liability insurance which, under certain circumstances,
would cover alleged violations of the Act. Insofar as indemnification for
liabilities arising under the Act may be permitted to officers and directors
pursuant to the foregoing provisions, the Registrant has been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
Therefore, in the event that a claim for such indemnification is asserted by any
officer or director the Registrant (except insofar as such claim seeks
reimbursement by the Registrant of expenses paid or incurred by an officer or
director in the successful defense of any action, suit or proceeding) will,
unless the matter has theretofore been adjudicated by precedent deemed by the
Registrant to be controlling, submit to a court of appropriate jurisdiction the
question of whether or not indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of FGHK, Inc.*
3.2 By-Laws of FGHK, Inc.*
4.1 Form of Collateral Trust Indenture.
4.2 Form of First Supplemental and Restated Trust Indenture, Assignment of Lease and
Rents and Security Agreement.
4.3 Form of Secured Lease Bonds, Series A, B and C -- included as part of Exhibit 4.1.
4.4 Form of Notes, Series A, B and C -- included as part of Exhibit 4.2.
4.5 Mortgage.**
4.6 Form of Beneficial Interest Assignment.
</TABLE>
II-1
<PAGE> 54
<TABLE>
<S> <C>
4.7 Form of Assignment Agreement.
4.8 Assignment of Rights.**
4.9 Form of First Amendment to Assignment of Rights.
5.1 Opinion of Brown & Wood as to the legality of the securities being registered.*
8.1 Opinion of Hunton & Williams as to tax matters.
11 Statement of computation of Earnings to Fixed Charges.
23.1 Consent of Price Waterhouse.
23.2 Consent of Hunton & Williams -- included in Exhibit 8.1.
23.3 Consent of Brown & Wood -- included in Exhibit 5.*
23.4 Consent of Dickinson, Wright, Moon, Van Dusen & Freeman.*
23.5 Consent of Marshall & Stevens Incorporated.***
24 Power of Attorney.*
25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of the Bond
Trustee.*
99.1 Lease.**
99.2 Form of First Amendment to Lease.
99.3 Ground Lease between Homart Community Centers, Inc., a Delaware corporation, and
Kmart Corporation dated as of July 16, 1992, with respect to property located in San
Diego, California.*
99.4 Ground Lease between Ventura Pacific Capital Group VI, a California limited
partnership, and Kmart Corporation dated as of October 7, 1992, with respect to
property located in Moorpark, California.*
99.5 Master Indemnification Agreement.
99.6 First Amendment to Master Indemnification Agreement.
</TABLE>
- -------------------------
* Previously filed and incorporated herein by reference.
** Pursuant to Item 601 of Regulation S-K, a copy of one of the executed
versions of this Exhibit is filed from which the terms of the other executed
versions do not materially deviate. A schedule indicating the Owner Trust
Number of the related Owner Trust and the geographic location of the related
property accompanies such form.
*** To be filed by amendment.
ITEM 17. UNDERTAKINGS.
A. UNDERTAKING PURSUANT TO RULE 430A
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(l) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 55
B. FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
C. INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the Debt Securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 56
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Troy and State of Michigan on March
11, 1994.
KMART CORPORATION
By /s/ JOSEPH E. ANTONINI*
(JOSEPH E. ANTONINI)
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities indicated on March 11, 1994.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------- ---------------------------
<S> <C>
/S/ JOSEPH E. ANTONINI* Chairman of the Board,
- --------------------------- President (Principal
(JOSEPH E. ANTONINI) Executive Officer) and
Director
/S/ THOMAS F. MURASKY* Executive Vice President
- --------------------------- (Principal Financial and
(THOMAS F. MURASKY) Accounting Officer)
/S/ LILYAN H. AFFINITO* Director
- ---------------------------
(LILYAN H. AFFINITO)
Director
- ---------------------------
(JOSEPH A. CALIFANO, JR.)
/S/ WILLIE C. DAVIS* Director
- ---------------------------
(WILLIE C. DAVIS)
/S/ ENRIQUE C. FALLA* Director
- ---------------------------
(ENRIQUE C. FALLA)
/S/ JOSEPH P. FLANNERY* Director
- ---------------------------
(JOSEPH P. FLANNERY)
*By: /S/ ANTHONY N. PALIZZI
ANTHONY N. PALIZZI
Attorney-in-fact
<CAPTION>
SIGNATURE TITLE
- --------------------------- ---------------------------
<S> <C>
/S/ DAVID B. HARPER* Director
- ---------------------------
(DAVID B. HARPER)
/S/ F. JAMES MCDONALD* Director
- ---------------------------
(F. JAMES MCDONALD)
/S/ RICHARD S. MILLER* Director
- ---------------------------
(RICHARD S. MILLER)
/S/ J. RICHARD MUNRO* Director
- ---------------------------
(J. RICHARD MUNRO)
/S/ DONALD S. PERKINS* Director
- ---------------------------
(DONALD S. PERKINS)
/S/ GLORIA M. SHATTO* Director
- ---------------------------
(GLORIA M. SHATTO)
/S/ JOSEPH R. THOMAS* Director
- ---------------------------
(JOSEPH R. THOMAS)
</TABLE>
II-4
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ------- --------------------------------------------------------------------------- ----------
<S> <C>
1 Form of Underwriting Agreement.
3.1 Certificate of Incorporation of FGHK, Inc.*
3.2 By-Laws of FGHK, Inc.*
4.1 Form of Collateral Trust Indenture.
4.2 Form of First Supplemental and Restated Trust Indenture, Assignment of
Lease and Rents and Security Agreement.
4.3 Form of Secured Lease Bonds, Series A, B and C -- included as part of
Exhibit 4.1.
4.4 Form of Notes, Series A, B and C -- included as part of Exhibit 4.2.
4.5 Mortgage.**
4.6 Form of Beneficial Interest Assignment.
4.7 Form of Assignment Agreement.
4.8 Assignment of Rights.**
4.9 Form of First Amendment to Assignment of Rights.
5.1 Opinion of Brown & Wood as to the legality of the securities being
registered.*
5.2 Opinion of Day, Berry & Howard as to the legality of the securities being
registered.*
8.1 Opinion of Hunton & Williams as to tax matters.
11 Statement of computation of Earnings to Fixed Charges.
23.1 Consent of Price Waterhouse.
23.2 Consent of Hunton & Williams -- included in Exhibit 8.1.
23.3 Consent of Brown & Wood -- included in Exhibit 5.1.*
23.4 Consent of Dickinson, Wright, Moon, Van Dusen & Freeman.*
23.5 Consent of Marshall & Stevens Incorporated.***
24 Power of Attorney.*
25 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of
the Bond Trustee.*
99.1 Lease.**
99.2 Form of First Amendment to Lease.
99.3 Ground Lease between Homart Community Centers, Inc., a Delaware
corporation, and Kmart Corporation dated as of July 16, 1992, with respect
to property located in San Diego, California.*
99.4 Ground Lease between Ventura Pacific Capital Group VI, a California limited
partnership, and Kmart Corporation dated as of October 7, 1992, with
respect to property located in Moorpark, California.*
99.5 Master Indemnification Agreement.
99.6 First Amendment to Master Indemnification Agreement.
</TABLE>
- -------------------------
* Previously filed and incorporated herein by reference.
** Pursuant to Item 601 of Regulation S-K, a copy of one of the executed
versions of this Exhibit is filed from which the terms of the other executed
versions do not materially deviate. A schedule indicating the Owner Trust
Number of the related Owner Trust and the geographic location of the related
property accompanies such form.
*** To be filed by amendment.
<PAGE> 1
Exhibit 1
March __, 1994
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
Ladies and Gentlemen:
Twenty-four Owner Trusts (the "Owner Trusts"), each established
pursuant to a trust agreement (each, a "Trust Agreement"), between an owner
trustee named therein ("Owner Trustee") acting thereunder not in its individual
capacity but solely as trustee, and the owner participant named therein (the
"Owner Participant"), have each acquired from Kmart Corporation, a Michigan
corporation (the "Company"), one of 24 properties (the "Properties"), including
title to the improvements thereon and consisting of 30-year estates for years
in 22 of the Properties (collectively, the "Fee Estates") and leasehold estates
(collectively, the "Leasehold Estates") of at least 25 years each in the
remaining two Properties. Each of the Owner Trusts has leased each of the Fee
Estates and has sublet each of the Leasehold Estates (and the improvements
thereon) back to the Company pursuant to individual net leases (the "Leases"),
each having an interim term from December 27, 1993, to December 31, 1993, a
base term of 25 years which commenced on January 1, 1994, with options to
renew.
The Company has sold a remainder interest in each of the Fee
Estates, commencing upon the expiration of the estates for years, to FGHK,
Ltd., A Wyoming Limited Liability Company (the "Remainder Purchaser"). In
consideration of a cash payment, the Remainder Purchaser has granted to the
applicable Owner Trusts options to lease the related Fee Estates from the
Remainder Purchaser, upon the expiration of the estates for years, pursuant to
separate Option Agreements, as defined in the Note Indentures (each, an
"Option Agreement").
In an interim financing, which closed on December 27, 1993,
each Owner Trust issued three notes (collectively, the "Initial Notes")
evidencing the debt of the Owner Trust with respect to the purchase of the
related Property to Bankers Trust. The Initial
<PAGE> 2
Notes relating to each Property are governed by one of 24 Trust
Indenture, Assignment of Lease and Rents and Security Agreements (each, an
"Initial Note Indenture") dated as of December 15, 1993, between the
appropriate Owner Trustee and The Bank of New York, a New York banking
corporation, as trustee (in such capacity, the "Note Trustee"). As security
for such Notes, the appropriate Owner Trustee assigned or pledged to the Note
Trustee, among other things, (a) an assignment of its rights under the Leases
and (b) an individual first mortgage on each Property (the "Mortgages").
The Initial Notes will be transferred to the Issuer on March
__, 1994 (the "Closing Date") in connection with the termination of the interim
financing. The Initial Notes will thereupon be amended (the Initial Notes, as
so amended, the "Notes"), and the Initial Note Indentures concurrently will be
amended and restated (the Initial Note Indentures, as so amended and restated,
the "Note Indentures").
On the Closing Date, the Issuer will pledge the Notes and will assign
certain of its interests in the Note Indentures to The Bank of New York, as
trustee (the "Bond Trustee"), pursuant to a collateral trust indenture dated as
of March __, 1994 (the "Bond Indenture"), between the Issuer, as holder of the
Notes, and the Bond Trustee. Pursuant to the Bond Indenture, the Bond Trustee
will issue ___% Secured Lease Bonds Series A and Series AR, due (the
"Series A Bonds" and the "Series AR Bonds", respectively), __% Secured Lease
Bonds Series B and Series BR, due (the "Series B Bonds" and the "Series BR
Bonds", respectively), and ___% Secured Lease Bonds Series C and Series CR, due
(the "Series C Bonds" and the "Series CR Bonds", respectively).
The Issuer agrees to sell to you, as underwriter (the
"Underwriter") the Series A Bonds, Series B Bonds and Series C Bonds
(collectively, the "Offered Bonds"), pursuant to the terms and conditions of
this Underwriting Agreement.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (No.
33-50297) for the registration of the Bonds under the Securities Act of 1933,
as amended (the "Securities Act") containing a preliminary prospectus relating
to the Offered Bonds, has filed such amendments thereto, if any, and such
amended preliminary prospectuses as may have been required to the date hereof,
and will file such additional amendments thereto and such amended prospectuses
as may hereafter be required. Such registration statement, as at any time so
amended, and the prospectus constituting a part thereof (including in each case
all documents incorporated therein by reference and the information, if any,
deemed to be a part thereof pursuant to Rule 430A(b) of the rules and
regulations of the Commission under the Securities Act (the "Securities Act
Regulations"), as from time to time amended or supplemented pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act, are hereinafter referred to as the "Registration Statement" and
the "Prospectus", respectively, except that if any revised prospectus shall be
provided to the Underwriter by the Company for use in connection with the
offering of the Offered Bonds that differs from the Prospectus on file at the
Commission at the time the Registration Statement becomes effective (whether or
not such revised prospectus is required to be
2
<PAGE> 3
filed by the Company pursuant to Rule 424(b) of the Securities Act
Regulations), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriter for such use.
SECTION 1. Purchase and Sale. On the basis of the
representations and warranties herein contained, and subject to the terms and
conditions herein set forth, the Issuer agrees to sell the Offered Bonds to the
Underwriter, and the Underwriter shall purchase the Offered Bonds from the
Issuer, at the time and place herein specified, at the respective prices
(expressed as a percentage of the principal amount) indicated below for each
series:
Series A Bonds Price: ________%
Series B Bonds Price: ________%
Series C Bonds Price: ________%
SECTION 2. Representations and Warranties of the Company and
the Issuer. (a) The Company represents and warrants to the Underwriter and
the Issuer as of the date hereof and as of the date of the Prospectus (such
later date being hereinafter referred to as the "Representation Date") that:
(i) The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of Michigan
and has the necessary corporate power and authority to conduct the
business that is described in the Prospectus and to own and operate
the properties owned and operated by it and is qualified as a foreign
corporation in good standing in each state where it owns property or
conducts business, except where the failure to so qualify would not
have a material adverse effect on the financial condition of the
Company.
(ii) The Registration Statement and the Prospectus, at the time
the Registration Statement became effective and as of the
Representation Date, complied, and will comply, in all material
respects with the requirements of the Securities Act, the Securities
Act Regulations and the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Registration Statement, at the time the
Registration Statement became effective and as of the Representation
Date, did not, and will not, contain any untrue statement of any
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
The Prospectus, at the time the Registration Statement became effective
and as of the Representation Date, did not, and will not, contain
3
<PAGE> 4
any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties
in this subsection shall not apply to statements in or omissions from
the Registration Statement or the Prospectus made in reliance upon and
in writing by or on behalf of the Underwriter expressly for use in the
Registration Statement or the Prospectus, or to that part of the
Registration Statement which shall constitute the Statement of
Eligibility and Qualification under the Trust Indenture Act (Form T-1)
of the Trustee, that part of the Registration Statement contained
under the headings "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS" and
"SUMMARY-Certain Federal Income Tax Considerations", that part of
the Registration Statement under the heading "ERISA CONSIDERATIONS"
[or that part of the Registration Statement under the heading
"APPRAISALS"].
(iii) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus, complied
and will comply, when so filed, in all material respects with the
Exchange Act and the rules and regulations promulgated by the
Commission thereunder and, when read together and with the other
information in the Prospectus, at the time the Registration Statement
became effective and at the time any amendments thereto become
effective or hereafter during the period referred to in Section 6(v)
hereof, did not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(iv) At the Closing Date, the Bond Indenture will be duly
qualified under, and will conform in all material respects with, the
requirements of the Trust Indenture Act and the rules and regulations
thereunder.
(v) The issuance and sale of the Bonds and the fulfillment of
the terms of this Underwriting Agreement will not result in a breach
of any of the terms or provisions of, or constitute a default under,
any financing agreement or instrument to which the Company is now a
party.
(vi) Since the respective dates as of which information is given
in the Registration Statement and in the Prospectus, except as
otherwise stated therein or contemplated thereby, there has been no
material adverse change in the condition, financial or otherwise,
results of operations or general affairs of the Company and its
subsidiaries taken as a whole or in the earnings, business affairs or
prospects of
4
<PAGE> 5
the Company and its subsidiaries taken as a whole, whether or not
arising in the ordinary course of business.
(vii) The execution and delivery by the Company of this
Underwriting Agreement, the ground leases with respect to the
Leasehold Estates (the "Ground Leases"), the Agreement for Sale of
Real Estate among the Company, the Owner Participant, the Owner
Trustee, the Remainder Owner Trustee and the Remainder Purchaser
(the "Purchase Agreement"), the Leases, and the Three Party
Agreements among the Company, the appropriate Owner Trust and the
Remainder Purchaser (the "Three Party Agreements") (collectively, the
"Lessee Documents"), the consummation by the Company of the
transactions contemplated herein and therein, and the compliance by
the Company with the terms hereof and thereof do not and will not
conflict with, or result in a breach of any of, the terms or
provisions of, or constitute a default under, the Articles of
Incorporation or By-Laws, as amended, of the Company or any material
indenture, mortgage or other agreement or instrument to which the
Company is a party or by which any of its properties is bound.
(viii) The Lessee Documents have each been duly authorized by the
Company and, when duly executed and delivered by the Company, will
constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms,
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity). The Lessee Documents
will conform in all material respects to the forms thereof contained
in the Registration Statement and the descriptions thereof in the
Prospectus.
(ix) Price Waterhouse, who reported on the annual consolidated
financial statements of the Company incorporated by reference in the
Prospectus, are independent auditors as required by the Securities Act
and the Securities Act Regulations.
(b) The Issuer represents and warrants to the Underwriter and
the Company as of the date hereof and as of the Representation Date that:
(i) The Issuer is duly organized and validly existing as a
corporation in good standing under the laws of the State of New York
and has the necessary corporate power and authority to conduct the
business that is described in the Prospectus and is qualified as a
foreign corporation in good standing in each state where it conducts
business, except
5
<PAGE> 6
where the failure to so qualify would not have a material adverse
effect on the financial condition or business of the Issuer.
(ii) The issuance and sale of the Bonds and the fulfillment
of the terms of this Underwriting Agreement will not result in a
breach of any of the terms or provisions of, or constitute a default
under, any financing agreement or instrument to which the Issuer is
now a party.
(iii) The execution and delivery by the Issuer of this
Underwriting Agreement, the Bond Indenture, the pledge of the notes and
the Beneficial Interest Assignment Agreement (collectively, the
"Issuer Documents"), the consummation by the Issuer of the
transactions contemplated herein and therein, and the compliance by
the Issuer with the terms hereof and thereof do not and will not
conflict with, or result in a breach of any of, the terms or
provisions of, or constitute a default under, the Articles of
Incorporation or By-Laws, as amended, of the Issuer or any material
indenture, mortgage or other agreement or instrument to which the
Issuer is a party.
(iv) Assuming that all actions that are required to be taken
in respect of the Bonds and the Bond Indenture under the
Securities Act, the Exchange Act and the Trust Indenture Act have been
taken and are in effect, the Bonds have been duly and validly
authorized, and, when executed and authenticated by the Bond Trustee
in accordance with the Bond Indenture and delivered to and paid for by
Bear, Stearns and Co. Inc., in its capacity as Underwriter, will
constitute legal, valid and binding obligations of the Issuer,
enforceable in accordance with their terms and will be secured by the
lien of and entitled to the benefits provided by the Bond Indenture.
SECTION 3. Offering. The Company is advised by the
Underwriter that it proposes to make a public offering of the Offered Bonds of
each series as soon after the Closing Date as in its judgment is advisable.
The Company and the Issuer are further advised by the Underwriter that the
Offered Bonds will be offered to the public at the respective public offering
prices set forth below (expressed as percentages of the principal amount of the
respective series of the Bonds). The Offered Bonds may also be offered to
certain dealers selected by the Underwriter at prices that represent
concessions under the public offering prices, and the Underwriter may allow,
and such dealers may reallow, concessions, not in excess of the amounts
indicated below (expressed as percentages of the principal amount of the
respective series of the Bonds):
6
<PAGE> 7
<TABLE>
<CAPTION>
Public Offering
Price Concession Reallowance
--------------- ---------- -----------
<S> <C> <C> <C>
Series A Bonds ________% ___% ___%
Series B Bonds ________% ___% ___%
Series C Bonds ________% ___% ___%
</TABLE>
SECTION 4. Time and Place of Closing. Delivery of the
Offered Bonds and payment of the purchase price therefor by wire transfer of,
or check or checks payable in immediately available funds, shall be made at the
offices of Brown & Wood, One World Trade Center, New York, New York, at 10:00
A.M., New York time, on the Closing Date, or at such other time on the same or
such other day as shall be agreed upon by the Company, the Issuer and the
Underwriter herein.
SECTION 5. Book-Entry Certificates; Inspection. The Offered
Bonds to be purchased by the Underwriter hereunder initially will be issued in
book-entry form and registered in the name of Cede & Co., as nominee for the
Depository Trust Company ("DTC") and shall be delivered by or on behalf of the
Issuer to the Underwriter against payment by the Underwriter of the respective
purchase prices therefor. The Issuer agrees to make such Offered Bonds
available to the Underwriter for inspection not later than 2:30 P.M., New York
time, on the last business day preceding the Closing Date at such place as may
be agreed upon between the Underwriter, the Issuer and the Company, or at such
other time and/or date as may be agreed upon between the Underwriter, the
Issuer and the Company.
SECTION 6. Covenants of the Company and the Issuer. (a) The
Company covenants and agrees with the Underwriter and the Issuer that:
(i) If, at any time from the date of this Underwriting
Agreement through the completion of the offering and initial resale of
the Offered Bonds by the Underwriter, any event occurs as a result of
which the Prospectus would include any untrue statement of a material
fact with respect to the Company or omit to state any material fact
with respect to the Company necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, the Company will promptly notify the Underwriter of such
occurrence and provide the Underwriter with all information necessary
or desirable in connection with the preparation of an amendment or
supplement to the Prospectus to correct any such statement or
omission.
(ii) Not later than the Closing Date, the Company will
deliver to the Underwriter and the Issuer a copy of the
7
<PAGE> 8
Registration Statement as originally filed electronically in
compliance with Regulation S-T of the Securities Act and of all
amendments or supplements thereto relating to the Offered Bonds, or
conformed copies thereof.
(iii) The Company will deliver to the Underwriter as many copies
of the Prospectus (and any amendments, supplements or documents
incorporated by reference thereto) as the Underwriter may reasonably
request.
(iv) The Company will cause the Prospectus to be filed with the
Commission and will advise the Underwriter promptly of the issuance of
any stop order under the Securities Act with respect to the
Registration Statement or the institution of any proceedings therefor
of which the Company shall have received notice. The Company will use
its best efforts to prevent the issuance of any such stop order and to
secure the prompt removal thereof if issued.
(v) During such period of time after the date of the
Prospectus as the Underwriter is required by law to deliver a
prospectus, if any event relating to or affecting the Company shall
occur, that in the Company's or the Underwriter's opinion should be
set forth in a supplement or amendment to the Prospectus in order to
make the Prospectus not misleading in the light of existing
circumstances when delivered to a purchaser of the Bonds, the Company
will amend or supplement, or cause to be amended or supplemented, the
Prospectus by either (A) preparing and filing with the Commission and
furnishing to the Underwriter a reasonable number of copies of a
supplement or supplements or any amendments to the Prospectus or (B)
making an appropriate filing pursuant to Section 13 or 14 of the
Exchange Act, that will supplement or amend the Prospectus, so that
the Prospectus, as so supplemented or amended, will not include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading. Unless such
event relates solely to the activities of the Underwriter (in which
case the Underwriter shall assume the expense of preparing any such
amendment or supplement), the expenses of complying with this
paragraph shall be borne by the Company until the expiration of nine
months from the initial effective date of the Registration Statement
and such expenses shall be borne by the Underwriter thereafter.
(vi) Before amending or supplementing the Registration
Statement or the Prospectus with respect to the Offered Bonds, the
Company will furnish to the Underwriter and the Issuer a copy of each
such proposed amendment or supplement.
8
<PAGE> 9
(vii) Prior to the Closing Date, the Company will furnish
such information as may be lawfully required and otherwise cooperate
in qualifying the Offered Bonds for offer and sale under the
"blue-sky" laws of such jurisdictions as the Underwriter may
reasonably designate; provided that the Company shall not be required
to qualify as a foreign corporation or dealer in securities in such
jurisdictions, to file any consents to service of process under the
laws of any such jurisdiction or to meet any other requirements
reasonably deemed by it to be unduly burdensome.
(b) The Company and the Issuer covenant and agree with the
Underwriter that:
(i) The Company and the Issuer will, except as herein
provided, initially pay or cause to be paid all expenses and taxes
(except transfer taxes) in connection with (A) the preparation and
filing of the Registration Statement (excluding the fees and expenses
of the Underwriter's counsel), (B) the printing, issuance and delivery
of the Offered Bonds and the preparation, execution, printing and
recordation of the Note Indentures and the Bond Indenture, (C) legal
fees and expenses relating to the qualification of the Bonds under the
"blue-sky" laws of various jurisdictions and the determination of the
eligibility of the Offered Bonds for investment under the laws of
various jurisdictions in an amount not to exceed $15,000, (D) the
printing and delivery to the Underwriter of reasonable quantities of
copies of the Registration Statement, the Preliminary Blue Sky Survey
and the Prospectus and any amendment or supplement thereto, except as
otherwise provided in paragraph (a)(v) of this Section 6 and (E) fees
of the rating agencies in connection with the rating of the Offered
Bonds. Except as provided above [and in the side letter], neither
the Issuer nor the Company shall be required to pay any amount for any
expenses of the Underwriter. Neither the Company nor the Issuer shall
in any event be liable to the Underwriter for damages on account of
loss of anticipated profits.
(c) The Issuer covenants and agrees with the Underwriter and the
Company that:
(i) The Issuer will promptly effect or cause to be effected
all requisite recordings and filings of the Note Indentures, the Bond
Indenture and any other documents required to be filed or recorded to
preserve the liens of such indentures on all the property described
therein, and will provide the Underwriter with an opinion of counsel,
addressed to the Issuer, that such recordings and filings
9
<PAGE> 10
have been duly made, with any required fees and expenses to be
paid by the Company.
SECTION 7. Conditions of Underwriter's Obligations. The
obligations of the Underwriter to purchase and pay for the Offered Bonds shall
be subject to the accuracy on the date hereof and on the Closing Date of the
representations and warranties of the Company and the Issuer contained herein,
to the performance by the Company and the Issuer of their respective covenants
and obligations hereunder, and subject to the additional following conditions:
(a) The Prospectus shall have been filed with the Commission prior to
5:30 P.M., New York time, on the second business day following the date of this
Underwriting Agreement, or such other time and date as may be approved by the
Underwriter.
(b) The Registration Statement shall have become effective, and the
Company shall have received notice thereof not later than 10:00 P.M., New York
time, on the date of this Underwriting Agreement, or at such other time and
date as the Underwriter and the Company shall agree and no stop order
suspending the effectiveness of the Registration Statement shall be in effect
at or prior to the Closing Date; no proceedings for such purpose shall be
pending before, or, to the knowledge of the Company or the Underwriter,
threatened by, the Commission on the Closing Date; and the Underwriter shall
have received a certificate of the Company, dated the Closing Date and signed
by the Chairman, President, Chief Financial Officer or the Treasurer of the
Company, to the effect that no such stop order has been issued or is in effect
and that no proceedings for such purpose are pending before, or, to the
knowledge of the Company, threatened by, the Commission.
(c) The Underwriter shall have received evidence satisfactory to it
that Bankers Trust has transferred the Initial Notes to the Issuer and has
released all of its interests (including any security interest) in, to and
under the Initial Notes, the Initial Note Indentures and any related
assignments executed in connection with the interim financing;
(d) The Underwriter shall have received a certificate of the
President, Vice President or Treasurer of the Company to the effect that with
respect to each Property, [to the knowledge of such officer no event has
occurred from [time] which might have had a material adverse effect on the
value of such Property or the business conducted thereon];
(e) Recorded copies of the Mortgages and the Assignments of Rights
shall have been made available to the Underwriter for inspection reasonably in
advance of the Closing Date;
(f) At the Closing Date, the Underwriter shall have received:
(i) The favorable opinions, dated as of the Closing Date, of
Dickinson, Wright, Moon, Van Dusen & Freeman, counsel to the Company,
and in-house counsel to the Company in form and substance satisfactory
to counsel for the Underwriter, to the effect that:
(A) The Company is a corporation duly organized and
validly existing as a corporation in good standing under the
laws of the State of Michigan.
(B) The Company is duly authorized by its Articles of
Incorporation, as amended, to conduct the business that it is
described in the Prospectus as conducting.
10
<PAGE> 11
(C) Each of the Lessee Documents conforms to the
descriptions thereof contained in the Registration Statement.
(D) The Lessee Documents have each been duly
authorized, executed and delivered by the Company and each
constitutes the valid and binding agreement of the Company,
enforceable against it in accordance with their respective
terms, except as the enforcement thereof may be limited by
bankruptcy, insolvency or other laws affecting enforcement of
creditors' rights generally, and such other matters, if any,
as may be set forth in the opinions of local counsel referred
to below.
(E) The Bond Indenture is qualified under the Trust
Indenture Act, and no proceedings to suspend such
qualification have been instituted or, to such counsel's
knowledge, threatened by the Commission.
(F) Except as to the financial statements and
other financial or statistical data contained or
incorporated by reference therein and in the statement of
eligibility and qualification under the Trust Indenture Act
(Form T-1) of the Trustee (the "T-1") and the sections
contained in the Registration Statement and Prospectus under
the headings "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS",
"SUMMARY-Certain Federal Income Tax Considerations", "ERISA
CONSIDERATIONS" [and "APPRAISALS"], upon which such counsel
is not required to state a belief, the Registration Statement,
at the time it became effective, and the Prospectus complied
as to form in all material respects with the applicable
requirements of the Securities Act and (except with respect to
the parts of the Registration Statement that constitute the
statements of eligibility and qualification of the trustee
under the Bond Indenture, upon which such counsel need not
opine) the Trust Indenture Act, and the applicable
instructions, rules and regulations promulgated by the
Commission thereunder or pursuant to said instructions, rules
and regulations are deemed to comply therewith; with respect
to the documents or portions thereof filed with the Commission
pursuant to the Exchange Act, and incorporated by reference in
the Prospectus pursuant to Item 12 of Form S-3, such documents
or portions thereof, on the date first filed with the
Commission, complied as to form in all material respects with
the applicable provisions of the Exchange Act, and the
applicable instructions, rules and regulations promulgated by
the Commission thereunder or pursuant to said instructions,
rules and regulations are deemed to comply therewith; the
Registration Statement has become and is effective under the
Securities Act; and, to the
11
<PAGE> 12
best knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for a stop order with respect thereto are
pending or threatened under Section 8(d) of the Securities Act.
(G) To the best of such counsel's knowledge, no
further approval, authorization, consent or other order of any
governmental body (other than in connection or compliance with
the provisions of the securities or blue-sky laws of any
jurisdiction) is legally required to permit the execution,
delivery and performance by the Company of the Lessee
Documents and this Underwriting Agreement.
(H) The issuance and sale of the Offered Bonds and the
execution, delivery and performance by the Company of each of
the Lessee Documents and this Underwriting Agreement (1) will
not violate any provision of the Company's Articles of
Incorporation or By-laws, each as amended, (2) will not, to
such counsel's knowledge, violate any provisions of, or
constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance on or security
interest in (except as contemplated by the Note Indentures or
Bond Indenture and the related assignments) any of the assets
of the Company pursuant to the provision of any mortgage,
indenture, contract, agreement or other undertaking to which
the Company is a party or that purports to be binding upon the
Company or upon any of its assets that is filed by the Company
with the Commission pursuant to the Exchange Act and (3) to
such counsel's knowledge will not violate any provision of any
state law or regulation applicable to the Company (other than
state securities or blue-sky laws, upon which such counsel
need not pass) or, to the best of such counsel's knowledge
(having made due inquiry with respect thereto), any provision
of any order, writ, judgment or decree of any governmental
instrumentality applicable to the Company.
Such opinion may state that in passing upon the forms of the
Registration Statement and the Prospectus, such counsel assumes the
correctness, completeness and fairness of the statements made by the
Company and information included or incorporated by reference in the
Registration Statement and the Prospectus and any representations of
the Company contained in this Underwriting Agreement and that they
take no responsibility therefor. The opinion should also state that,
in connection with the preparation of the Registration Statement and
the Prospectus, such counsel has had discussions with certain of the
Company's officers and representatives, with other counsel for the
Company, with Price Waterhouse, the independent certified public
12
<PAGE> 13
accountants who audited certain of the financial
statements incorporated by reference in the Registration
Statement, and with the Underwriter's representatives, and
that such counsel's examination of the Registration Statement
and the Prospectus and its discussions did not disclose to
them any information that gives them reason to believe that,
at the effective date of the Registration Statement, the
Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required
to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading or that the Prospectus, as of the
date thereof and the date hereof, included or includes any
untrue statement of a material fact or omitted or omits to
state any material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading. Such counsel need not
express any belief or opinion as to the financial statements
or other financial or statistical data contained or
incorporated by reference in the Registration Statement or the
Prospectus, applicable antitrust laws, the T-1 or the sections
of the Prospectus under the headings "CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS", "SUMMARY-Certain Federal Income Tax
Considerations", "ERISA CONSIDERATIONS" [and "APPRAISALS"].
(ii) The favorable opinion, dated as of the Closing Date, of
counsel acceptable to the Underwriter, the Issuer and the Company in
form and substance satisfactory to such parties to the effect that:
(A) The statements and legal conclusions contained
in the Prospectus under the captions "CERTAIN FEDERAL
INCOME TAX CONSIDERATIONS" and "SUMMARY - Certain Federal
Income Tax Considerations" are correct, and the discussion
thereunder does not omit any considerations that are material
to holders of the Offered Bonds with respect to the matters
covered.
(B) If (1) the Company, each Owner Trustee, the
Issuer, the Bond Trustee, the Note Trustee, the Tax
Administrator, and the other parties to the issuance
transaction comply with all of the provisions of the Bond
Indenture, the Note Indentures, the Mortgages and the other
documents to be prepared and executed in connection with such
transaction, (2) the Bonds are issued and sold as described in
the Registration Statement and (3) an election is properly
made and filed for the Pool A Asset Group, the Pool B Asset
Group and the Pool C Asset Group (as defined in the Bond
Indenture) to be treated as separate REMICs pursuant to
section 860D of the Code, each such Asset Group will qualify
as a REMIC, and the Series A Bonds, the Series B Bonds, and
13
<PAGE> 14
the Series C Bonds will be considered to be "regular
interests" in the related REMICs, on the date of issuance
thereof and thereafter, assuming continuing compliance with
the REMIC provisions of the Code and any regulations
thereunder.
(iii) The favorable opinion, dated as of the Closing Date, of
Day, Berry & Howard, special counsel for the Issuer, in form and
substance satisfactory to counsel for the Underwriter, to the effect
that:
(A) The Issuer is a corporation duly incorporated
and validly existing in good standing under the laws of the
State of New York.
(B) The Issuer Documents have been duly authorized,
executed and delivered by the Issuer.
(C) The Offered Bonds and the Issuer Documents
conform in all material respects with the statements
concerning them made in the Prospectus.
(D) The Offered Bonds have been duly authorized,
executed and delivered by the Issuer.
(iv) The favorable opinion, dated as of the Closing Date, of
Emmet, Marvin & Martin, counsel for the Note Trustee, in form and
substance satisfactory to counsel for the Underwriter, to the effect
that:
(A) The Note Trustee, at the time of its execution
and delivery of the Note Indentures, had full power and
authority to execute and deliver the Note Indentures and has
full power and authority to perform its obligations
thereunder.
(B) Each of the Note Indentures has been duly and
validly authorized, executed and delivered by the Note Trustee
and, assuming due authorization, execution and delivery
thereof by the appropriate Owner Trustee, constitutes the
valid and binding obligation of the Note Trustee enforceable
against the Note Trustee in accordance with its terms, except
as enforcement thereof may be limited by bankruptcy,
insolvency or other laws relating to or affecting creditors'
rights or by general principles of equity.
(C) To the best of such counsel's knowledge, there
are no actions, proceedings or investigations pending or
threatened against or affecting the Note Trustee before or by
any court, arbitrator, administrative agency or other
governmental authority
14
<PAGE> 15
that, if adversely decided, would materially and
adversely affect the ability of the Note Trustee to carry out
the transactions contemplated in the Note Indentures.
(D) No consent, approval or authorization of, or
registration, declaration or filing with, any court or
governmental agency or body of the United States of America or
any state thereof was or is required for the execution,
delivery or performance by the Note Trustee of the Note
Indentures.
(v) The favorable opinion, dated as of the Closing Date, of
Emmet, Marvin & Martin, counsel for the Bond Trustee, in form and
substance satisfactory to counsel for the Underwriter, to the effect
that:
(A) The Bond Trustee, at the time of its execution
and delivery of the Bond Indenture, had full power and
authority to execute and deliver the Bond Indenture and has
full power and authority to perform its obligations
thereunder.
(B) The Bond Indenture has been duly and validly
authorized, executed and delivered by the Bond Trustee and,
assuming due authorization, execution and delivery thereof by
the Issuer, constitutes the valid and binding obligation of
the Bond Trustee enforceable against the Bond Trustee in
accordance with its terms, except as enforcement thereof may
be limited by bankruptcy, insolvency or other laws relating to
or affecting creditors' rights or by general principles of
equity.
(C) To the best of such counsel's knowledge, there
are no actions, proceedings or investigations pending or
threatened against or affecting the Bond Trustee before or by
any court, arbitrator, administrative agency or other
governmental authority that, if adversely decided, would
materially and adversely affect the ability of the Bond
Trustee to carry out the transactions contemplated in the Bond
Indenture.
(D) No consent, approval or authorization of, or
registration, declaration or filing with, any court or
governmental agency or body of the United States of America or
any state thereof was or is required for the execution,
delivery or performance by the Bond Trustee of the Bond
Indenture.
15
<PAGE> 16
(vi) The favorable opinion, dated as of the Closing Date, of
counsel for each Owner Trustee acceptable to the Underwriter, the
Issuer and the Company, in form and substance satisfactory to such
parties to the effect that:
(A) The Owner Trustee has been duly incorporated and
is validly existing as a banking corporation in good standing
under the laws of the United States.
(B) The Owner Trustee has full corporate trust power
and authority to enter into and perform its obligations under
the Trust Agreements and, on behalf of the Owner Trusts, the
obligations under the Mortgages, Leases and each First
Amendment to Lease, Purchase Agreement, each Three Party
Agreement, each Option Agreement, Note Indentures, each
Assignment of Rights, each First Amendment to Assignment of
Rights, Master Indemnification Agreement and the First
Amendment to Master Indemnification Agreement and any related
consent (the "Owner Trust Documents").
(C) The execution and delivery of the Trust
Agreements and, on behalf of the Owner Trusts, of the Owner
Trust Documents and the performance by the Owner Trustee of
its obligations under the Trust Agreements and the Owner Trust
Documents, have been duly authorized by all necessary
corporate action of the Owner Trustee, and each has been duly
executed and delivered by the Owner Trustee.
(D) The Trust Agreements and the Owner Trust
Documents constitute valid and binding agreements of the Owner
Trustee, enforceable against the Owner Trustee in accordance
with their terms, subject, as to enforcement of remedies, (1)
to applicable bankruptcy, insolvency, reorganization, and
other similar laws affecting the rights of creditors generally
and (2) to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or
at law).
(E) The execution and delivery by the Owner Trustee
of the Trust Agreements and the Owner Trust Documents, on
behalf of the Owner Trusts, do not require any consent,
approval or authorization of, or any registration or filing
with, any state or United States Federal governmental
authority having jurisdiction over the trust power of the
Owner Trustee, other than those consents, approvals or
authorizations as have been obtained and the filing of the
Certificate of Trust with the Secretary of State of the State
of New York.
(F) The execution and delivery by the Owner Trustee
of the Trust Agreements and, on behalf of the Owner Trusts,
the Owner Trust Documents, and the performance by the Owner
Trustee of its obligations thereunder do not conflict with,
result in a breach or
16
<PAGE> 17
violation of or constitute a default under, the
Articles of Association or By-laws of the Owner Trustee.
(G) The trusts created by the Trust Agreements have
been duly created and are validly existing.
(H) The Trust Agreements authorize the Owner Trusts
to execute and deliver the Owner Trust Documents, to issue the
Notes and to assign the Mortgages and certain rights in the
Leases to the Note Trustee.
(I) The Notes have been duly and validly authorized,
executed and issued by the Owner Trusts and when delivered to
the Issuer, the Notes have been validly issued and are
entitled to the benefits of the Note Indentures.
(J) Neither the Company nor the Owner Participant
shall have any right to obtain possession of, or otherwise any
legal or equitable remedies with respect to, the property of
the Owner Trusts.
(vii) The favorable opinion, dated as of the Closing Date, of
Day, Berry & Howard, counsel for the Remainder Purchaser, in form and
substance satisfactory to counsel for the Underwriter, to the effect
that:
(A) The Remainder Purchaser, at the time of its
execution and delivery of the Three Party Agreements and the
Option Agreements, had full power and authority to execute and
deliver the Three Party Agreements and the Option Agreements
and has full power and authority to perform its obligations
thereunder.
(B) Each of the Three Party Agreements and the Option
Agreements has been duly and validly authorized, executed and
delivered by the Remainder Purchaser and each constitutes the
valid and binding obligation of the Remainder Purchaser
enforceable against the Remainder Purchaser in accordance with
its terms, except as enforcement thereof may be limited by
bankruptcy, insolvency or other laws relating to or affecting
creditors' rights generally or by general principles of
equity.
(C) To the best of such counsel's knowledge, there
are no actions, proceedings or investigations pending or
threatened against or affecting the Remainder Purchaser before
or by any court, arbitrator, administrative agency or other
governmental authority that, if adversely decided, would
materially and adversely affect the ability of the Remainder
Purchaser
17
<PAGE> 18
to carry out the transactions contemplated in the Three
Party Agreement and the Option Agreements.
(D) No consent, approval or authorization of, or
registration, declaration or filing with, any court or
governmental agency or body of the United States of America or
any state thereof was or is required for the execution,
delivery or performance by the Remainder Purchaser of the
Three Party Agreements and the Option Agreements.
(viii) Opinions of local counsel acceptable to the Rating
Agencies, dated as of the Closing Date, in each jurisdiction in which
a Property is located, substantially in the form attached hereto as
Exhibit A.
(ix) Such other opinions, dated as of the Closing Date, of
any of the aforenamed counsel and addressed to the Underwriter, on
such matters as the Underwriter may reasonably request, in form and
substance satisfactory to counsel for the Underwriter.
(g) At the Closing Date, the Underwriter shall have received
an opinion from its counsel, Brown & Wood, in a form acceptable to the
Underwriter. Such opinion may state that in passing upon the forms of the
Registration Statement and the Prospectus, such counsel assumes the
correctness, completeness and fairness of the statements made by the Company
and information included or incorporated by reference in the Registration
Statement and the Prospectus and any representations of the Company contained
in this Underwriting Agreement and that they take no responsibility therefor.
The opinion should also state that, in connection with the preparation of the
Registration Statement and the Prospectus, such counsel has had discussions
with certain of the Company's officers and representatives, with counsel for
the Company, with Price Waterhouse, the independent certified public
accountants who audited certain of the financial statements incorporated by
reference in the Registration Statement, and with the Underwriter's
representatives, and that such counsel's examination of the Registration
Statement and the Prospectus and its discussions did not disclose to them any
information that gives them reason to believe that, at the effective date of
the Registration Statement, the Registration Statement contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, not misleading
or that the Prospectus, as of the date thereof and the date hereof, included or
includes any untrue statement of a material fact or omitted or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. Such
counsel need not express any belief or opinion as to the financial statements
or other financial or statistical data contained or incorporated by reference
in the Registration Statement or the Prospectus or the section of the
Prospectus under the headings "SUMMARY-Certain Federal Income
18
<PAGE> 19
Tax Considerations" and "CERTAIN FEDERAL INCOME TAX CONSIDERATIONS".
(h) On or prior to the effective date of this Underwriting
Agreement, the Underwriter shall have received from Price Waterhouse a letter
dated the date of the Prospectus, substantially in the form of the draft letter
previously delivered to the Underwriter.
(i) At the Closing Date, the Underwriter shall have received
certificates from the Company and the Issuer dated the Closing Date and
signed by the respective President, Chief Financial Officer or Treasurer thereof
to the effect that (i) the representations and warranties of the Company or the
Issuer, as appropriate, contained herein are true and correct and (ii) the
Company or the Issuer, as applicable, has performed and complied with all
agreements and conditions in this Underwriting Agreement to be performed or
complied with by such entity at or prior to the Closing Date.
(j) At the Closing Date, there shall not have been, since the
respective dates as of which the related information is given in the
Registration Statement and the Prospectus, except as otherwise provided
therein or contemplated thereby, any material adverse change in the condition,
financial or otherwise, of the Company, whether or not arising in the
ordinary course of business, and the Underwriter shall have received a
certificate of one of the officers of the Company, referred to in the previous
paragraph dated as of the Closing Date, to the effect that there has been no
such material adverse change and that since the most recent date as of which
information is given in the Prospectus, as amended or supplemented, there has
been no material adverse change in the business, property or financial
condition of the respective entity, and there has not been any material
transaction entered into by such entity, other than transactions in the
ordinary course of business, in each case other than as referred to in, or
contemplated by the Prospectus, as amended or supplemented.
(k) Subsequent to the execution and delivery of this Underwriting
Agreement and prior to the Closing Date, none of Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Group, a division of McGraw-Hill
Inc. ("S&P") or Duff and Phelps Credit Rating Co. ("D&P") shall have downgraded
its rating of the Company's taxable debt securities having maturities greater
than one year.
(l) The Underwriter and the Company shall have received duly executed
counterparts of each of the Owner Trust Documents.
(m) Between the date hereof and the Closing Date, no Event of Default
(as defined in the Bond Indenture) shall have occurred.
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<PAGE> 20
(n) At the Closing Date, the Issuer shall have received letters from
Moody's, S&P and D&P rating the Offered Bonds "A2", "A" and "A",
respectively.
(o) Between the date hereof and the Closing Date, no other event
shall have occurred with respect to or otherwise affecting the Company that, in
the reasonable opinion of the Underwriter, materially impairs the investment
quality of the Offered Bonds.
(p) At the Closing Date:
(i) The Owner Trusts shall have received an original A.L.T.A.
Standard Owner's Policy of title insurance and Bankers Trust shall
have received an original A.L.T.A. Standard Lender's Policy covering
the Properties (or the valid, binding and unconditional commitment
therefor), dated as of the respective date of recording, in current
form issued to the Owner Trusts and Bankers Trust by a title
insurance company satisfactory to counsel to the Underwriter with
such reinsurance and endorsements reasonably acceptable to such
counsel, together with an assignment of the Lender's Policy from
Bankers Trust to the Note Trustee. Such policy shall (A) insure (1)
title to the Properties, subject to no liens or encumbrances except
Permitted Encumbrances and (2) that any restrictions affecting the
Properties have not been violated and that a future violation thereof
will not result in a forfeiture or reversion of title, (B) be in an
amount at least equal to the aggregate principal amount of the
Offered Bonds and (C) be satisfactory in all respects to counsel for
the Underwriter.
(ii) The Underwriter shall have received copies of all
certificates of insurance fulfilling the requirements, if any, set
forth in the Leases, together with proof that the premiums therefor
have been paid in full.
(iii) The Underwriter shall have received a copy of a Phase I
environmental report for each Property that is satisfactory in all
respects to counsel for the Underwriter.
All legal matters in connection with the issuance and sale of the
Offered Bonds shall be satisfactory in form and substance to Underwriter's
counsel.
The Company will furnish the Underwriter with such conformed copies of
such opinions, certificates, letters and documents as may be reasonably
requested.
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<PAGE> 21
If any of the conditions specified in this Section shall not have been
fulfilled, this Underwriting Agreement may be terminated by the Underwriter
upon notice thereof to the Company. Any such termination shall be without
liability of any party to any other party, except as otherwise provided in
paragraph (a)(v) of Section 6 and in Section 9 hereof.
SECTION 8. Conditions of the Company's and the Issuer's
Obligations. The respective obligations of the Company and the Issuer
hereunder shall be subject to the following conditions:
(a) The Prospectus shall have been filed with the Commission prior to
5:30 P.M., New York time, on the second business day following the date of this
Underwriting Agreement, or such other time and date as may be approved by the
Underwriter.
(b) The Registration Statement shall have become effective, and no
stop order suspending the effectiveness of the Registration Statement shall be
in effect at or prior to the Closing Date, and no proceedings for that purpose
shall be pending before, or threatened by, the Commission on the Closing Date.
(c) Each of the opinions, other than the opinions provided by counsel
for the Company or by local counsel, set forth in Section 7 hereof
shall have been addressed to the Company or the Company shall have received
reliance letters from counsel providing such opinions allowing the Company to
rely thereon and each such opinion, other than the opinions provided by counsel
for the Issuer, shall have been addressed to the Issuer or the Issuer shall
have received reliance letters from counsel providing such opinions allowing
the Issuer to rely thereon.
(d) Officers' certificates from each entity required to submit
opinions pursuant to Section 7 hereof shall have been provided to the Company,
attesting to (i) the accuracy of all assumptions made by their counsel in such
opinions, (ii) the due and valid execution, authorization and delivery and
enforceability against such entity of each of the documents to be delivered
by such entity and (iii) the due organization or incorporation of such entity
under the laws of their respective jurisdictions of incorporation and their
good standing in or proper authorization to do business in such jurisdictions.
In case any of the conditions specified in this Section shall not have
been fulfilled, or if any of the transactions contemplated herein as occurring
on or before the Closing Date shall not have occurred, this Underwriting
Agreement may be terminated by the Company upon notice thereof to the
Underwriter. Any such termination shall be without liability of any party to
any other party, except as otherwise provided in paragraph (a)(v) of Section 6
and in Section 9 hereof.
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<PAGE> 22
SECTION 9. Indemnification.
(a) The Company shall indemnify, defend and hold harmless the
Underwriter and the Issuer and each person who controls the Underwriter or the
Issuer within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act (each, an "Indemnified Party") from and against any and all
losses, claims, damages or liabilities, joint or several, to which it may
become subject under the Securities Act, the Exchange Act or any other statute
or common law and shall reimburse each Indemnified Party for any legal or other
expenses (including, to the extent hereinafter provided, reasonable counsel
fees) incurred by it in connection with investigating any such losses, claims,
damages or liabilities or in connection with defending any actions, insofar as
such losses, claims, damages, liabilities, expenses or actions arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact and contained in the Registration Statement, as amended or supplemented,
or the omission or alleged omission to state therein a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, or upon an untrue statement or alleged untrue
statement of a material fact and contained in the Prospectus, as amended or
supplemented, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
provided, however, that the indemnity agreement described in this subsection
shall not apply to any such losses, claims, damages, liabilities, expenses or
actions arising out of, or based upon, any such untrue statement or alleged
untrue statement, or any such omission or alleged omission, if such statement
or omission was made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of an Indemnified Party
specifically for use in connection with the preparation of the Registration
Statement or the Prospectus or any amendment or supplement to either thereof or
arising out of, or based upon, statements in or omissions from that part of the
Registration Statement that shall constitute the statements of eligibility and
qualification under the Trust Indenture Act of the Bond Trustee under the Bond
Indenture; and provided further that the indemnity agreement described in this
subsection shall not inure to the benefit of the Underwriter or of any person
controlling the Underwriter on account of any such losses, claims, damages,
liabilities, expenses or actions arising from the sale of Offered Bonds to any
person in respect of the Prospectus, as supplemented or amended (excluding
however, any document then incorporated or deemed incorporated by reference
therein pursuant to Item 12 of Form S-3) furnished by the Underwriter to a
person to whom any of the Offered Bonds were sold, insofar as such indemnity
relates to any untrue or misleading statement or omission made in the
Prospectus but eliminated or remedied prior to the consummation of such sale in
22
<PAGE> 23
the Prospectus, or any amendment or supplement thereto furnished pursuant to
Section 6 hereof, respectively, unless a copy of such amendment or supplement
is furnished by such Underwriter to such person (i) with or prior to the
written confirmation of the sale involved or (ii) as soon as available after
such written confirmation.
(b) The Underwriter shall indemnify, defend and hold harmless the
Company, its directors and officers and each person who controls any of the
foregoing within the meaning of Section 15 of the Securities Act and Section 20
of Exchange Act, from and against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act or any other statute or common law and shall reimburse
each of them for any legal or other expenses (including, to the extent
hereinafter provided, reasonable counsel fees) incurred by them in connection
with investigating any such losses, claims, damages or liabilities or in
connection with defending any action, insofar as such losses, claims, damages,
liabilities, expenses or actions arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, as amended or supplemented, or the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, not misleading, or upon an untrue statement or alleged untrue
statement of a material fact contained in, the Prospectus, as amended or
supplemented (if any amendments or supplements thereto shall have been
furnished), or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, in
each case, if (but only if) such statement or omission was made in reliance
upon and in conformity with information furnished in writing to them or its
counsel by the Underwriter or its counsel specifically for use in connection
with the preparation of the Registration Statement or the Prospectus or any
amendment or supplement thereto.
(c) In case any action shall be brought based upon the Registration
Statement or the Prospectus (including amendments or supplements thereto)
against any party or parties in respect of which indemnity may be sought
pursuant to any of the preceding paragraphs, such party or parties (hereinafter
called the indemnified party) shall promptly notify the party or parties
against whom indemnity shall be sought hereunder (hereinafter called the
indemnifying party) in writing, and the indemnifying party shall have the right
to participate at its own expense in the defense or, if it so elects, to assume
(in conjunction with any other indemnifying party) the defense thereof,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all fees and expenses. If the indemnifying party
shall elect not to assume the defense of any
23
<PAGE> 24
such action, the indemnifying party shall reimburse the indemnified party for
the reasonable fees and expenses of any counsel retained by such indemnified
party. Such indemnified party shall have the right to employ separate counsel
in any such action in which the defense has been assumed by the indemnifying
party and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel has been specifically authorized by the indemnifying
party or (ii) the named parties to any such action (including any impleaded
parties) include each of such indemnified party and the indemnifying party and
such indemnified party shall have been advised by such counsel that a conflict
of interest between the indemnifying party and such indemnified party may arise
and for this reason it is not desirable for the same counsel to represent both
the indemnifying party and the indemnified party (it being understood, however,
that the indemnifying party shall not, in connection with any one such action
or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for such indemnified party) (plus any local counsel retained by such
indemnified party in their reasonable judgment), which firm (or firms), in the
case of the Underwriter being the indemnified party, shall be designated in
writing by the Underwriter. The indemnified party shall be reimbursed for all
such fees and expenses as they are incurred. The indemnifying party shall not
be liable for any settlement of any such action effected without its consent,
but if any such action is settled with the consent of the indemnifying party or
if there shall be a final judgment for the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless the indemnified party
from and against any loss or liability by reason of such settlement or
judgment.
(d) If the indemnification provided for under subsection (a), (b) or
(c) in this Section 9 is unavailable to an indemnified party in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Underwriter from the offering of the Offered Bonds or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in subsection (a) above but also the relative fault of the Company on the
one hand and of the Underwriter on the other in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriter on the other
24
<PAGE> 25
shall be deemed to be in the same proportion as the total proceeds from the
offering (after deducting underwriting discounts and commissions but before
deducting expenses) to the Company bear to the total underwriting discounts and
commissions received by the Underwriter, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault of the Company on the
one hand and of the Underwriter on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the Underwriter and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in subsection (a) of
this Section 9 is due in accordance with its terms but is for any reason held
by a court to be unavailable to the Company on grounds of policy or otherwise,
the Company and the Underwriter shall contribute to the aggregate losses,
claims, damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending the same) to which the
Company and the Underwriter may be subject in such proportion so that the
Underwriter is responsible for that portion represented by the percentage that
the underwriting discount bears to the sum of such discount and the purchase
price of the Offered Bonds and the Company is responsible for the balance;
provided, however, that in no case shall the Underwriter be responsible for any
amount in excess of the underwriting discount applicable to the Offered Bonds
purchased by the Underwriter hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
SECTION 10. Survival of Certain Representations and
Obligations. Any other provision of this Underwriting Agreement to the
contrary notwithstanding, (a) the indemnity and contribution agreements
contained in Section 9 hereof and the representations and warranties and other
agreements of the Company contained in this Underwriting Agreement shall remain
operative and in full force and effect regardless of (i) any investigation made
by or on behalf of the Underwriter or any person controlling the Underwriter or
by or on behalf of the Company, its directors or officers or the persons
controlling the Company and (ii) acceptance of and payment for the Offered
Bonds and (b) the indemnity and contribution agreements contained in Section 9
25
<PAGE> 26
hereof shall remain operative and in full force and effect regardless of any
termination of this Underwriting Agreement.
SECTION 11. Termination. This Underwriting Agreement shall
be subject to termination by notice given by the Underwriter to the Company if
(a) after the execution and delivery of this Underwriting Agreement and prior
to the Closing Date (i) trading generally shall have been suspended or
materially limited on the New York Stock Exchange by the New York Stock
Exchange, the Commission or any other governmental authority, (ii) minimum or
maximum ranges for prices shall have been generally established on the New York
Stock Exchange by the New York Stock Exchange, the Commission or other
governmental authority, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any material outbreak or
escalation of hostilities or any calamity or crisis that, in the judgment of
the Underwriter, is material and adverse and (b) in the case of any of the
events specified in clauses (a)(i) through (iv), such event singly or together
with any other such event makes it, in the reasonable judgment of the
Underwriter, impracticable to market the Offered Bonds. This Underwriting
Agreement shall also be subject to termination, upon notice by the Underwriter
as provided above, if, in the judgment of the Underwriter, the subject matter
of any amendment or supplement (prepared by the Company) to the Prospectus
(except for information relating solely to the manner of public offering of the
Offered Bonds, to the activity of the Underwriter or to the terms of the
Offered Bonds) filed or issued after the effectiveness of this Underwriting
Agreement by the Company shall have materially impaired the marketability of
the Offered Bonds. Any termination hereof, pursuant to this Section 11, shall
be without liability of any party to any other party, except as otherwise
provided in paragraph (a)(v) of Section 6 and in Section 9 hereof.
SECTION 12. Miscellaneous. THIS UNDERWRITING AGREEMENT SHALL
BE A NEW YORK CONTRACT AND ITS VALIDITY AND INTERPRETATION SHALL BE GOVERNED BY
THE LAW OF THE STATE OF NEW YORK. This Underwriting Agreement may be executed
in any number of separate counterparts, each of which, when so executed and
delivered, shall be deemed to be an original and all of which, taken together,
shall constitute but one and the same agreement. This Underwriting Agreement
shall become effective at the time a fully executed copy thereof is delivered
to the Company and the Underwriter. This Underwriting Agreement shall inure to
the benefit of each of the Company and the Underwriter and, with respect to the
provisions of Section 9 hereof, each director, officer and controlling person
referred to in Section 9 hereof, and their respective successors. Should any
part of this Underwriting Agreement for any reason be declared invalid, such
declaration shall not affect the validity of any remaining portion, which
remaining portion shall remain in full force and
26
<PAGE> 27
effect as if this Underwriting Agreement had been executed with the invalid
portion thereof eliminated. Nothing herein is intended or shall be construed
to give to any other person, firm or corporation any legal or equitable right,
remedy or claim under or in respect of any provision in this Underwriting
Agreement. The term "successor" as used in this Underwriting Agreement shall
not include any purchaser, as such purchaser, of any Offered Bonds from the
Underwriter.
SECTION 13. Notices. All communications hereunder shall be
in writing and, if to the Underwriter, shall be mailed or delivered to Bear,
Stearns & Co. Inc. at the address set forth at the beginning of this
Underwriting Agreement (to the attention of Managing Director, Corporate
Finance Division), if to the Company, shall be mailed or delivered to it at
3100 West Big Beaver Road, Troy, Michigan 48040, Attention: Executive Vice
President and Chief Financial Officer, and if to the Issuer, shall be mailed or
delivered to it at c/o Pine Street Capital Corporation, 750 Old Hickory
Boulevard, Two Brentwood Commons, Suite 150, Brentwood, Tennessee 37027.
27
<PAGE> 28
If the foregoing is in accordance with your understanding of
this agreement, please sign and return a counterpart hereof, whereupon this
letter and your acceptance shall represent a binding agreement by and among
Kmart Corporation, FGHK, Inc. and Bear, Stearns & Co. Inc.
Very truly yours,
KMART CORPORATION
By:_____________________________
Name:
Title:
FGHK, INC.
By:_____________________________
Name:
Title:
Accepted as of the date
first above written:
BEAR, STEARNS & CO. INC.
By:________________________________
Name:
Title:
28
<PAGE> 29
FORM OF OPINION OF LOCAL COUNSEL
[Letterhead of local counsel]
To Persons Listed on Schedule A
Attached Hereto
Re: Kmart Secured Lease Bonds
Ladies and Gentlemen:
We have acted as special [State] counsel to Shawmut Bank Connecticut National
Association [Society National Bank] ("Shawmut" or "Society" [and
____________]), not in its [their] individual capacity except as expressly
stated therein, but solely as Owner Trustee (in such capacity, the "Borrower")
under the Trust Agreement or Trust Agreements (each a "Trust Agreement") dated
as of December 15, 1993, with RETRAM, Inc. (the "Owner Participant") in
connection with:
(i) the issuance by the Borrower of its Series A Note, Series B Note
and Series C Note dated March __, 1994 (collectively, the "Notes") under
and pursuant to a certain First Supplemental and Restated Trust Indenture,
Assignment of Lease and Rents and Security Agreement (the "Note Indenture")
between the Borrower and The Bank of New York ("BONY"), as Note Trustee (in
such capacity, the "Lender");
(ii) the granting by the Borrower of certain Mortgages (hereinafter
defined); and
(iii) the execution and delivery of that certain Lease dated December
15, 1993 between the Borrower, as Landlord, and Kmart Corporation
("Kmart"), as Tenant, as amended on March __, 1994 (the "Lease").
In connection therewith, we have reviewed forms of the documents
(collectively, the "Documents") identified in numbers 1-11 following:
1. The Trust Agreement;
2. The Notes;
<PAGE> 30
3. The [Mortgage] [Deed of Trust] [Deed to Secure Debt] and Security
Agreement (the "Mortgage") from the Borrower, to the Lender, dated December
15, 1993 encumbering certain real and personal property (the "Property");
4. The Uniform Commercial Code Financing Statements made by the
Borrower, as debtor, and the Lender, as secured party (the "Fixture
Filing");
5. The Note Indenture;
6. The Lease;
7. Assignment of Rights dated December 15, 1993 by Borrower to Lender
(the "Lease Assignment");
8. The Agreement for Purchase of Real Estate, dated as of December 15,
1993 by and among Kmart, the Owner Participant, FGHK, Ltd. (the "Remainder
Purchaser"), the Borrower, Shawmut, as New York Remainder Owner Trustee,
Society National Bank, as Ohio Owner Trustee and Society National Bank as
Ohio Remainder Owner Trustee;
9. Three Party Agreement dated as of December 15, 1993, between Kmart
as Tenant, the Remainder Purchaser, and the Borrower;
10. The Option and Estate for Years Agreement dated as of December 15,
1993 between Borrower, as Optionee, and the Remainder Purchaser, as
optionor (the "Option");
11. The Amended and Restated Master Indemnification Agreement dated
March __, 1994 by and among Kmart, in its individual capacity as owner
trustee and as the Owner Participant, the Remainder Purchaser, Shawmut, the
Remainder Owner Trustee, Society, in its individual capacity and as the
Ohio Owner Trustee and the Ohio Remainder Owner Trustee, Bankers Trust
Company, BONY, in its individual capacity and Note Trustee and not in its
individual capacity, but as Bond Trustee (in such capacity, the "Bond
Trustee") and the Bondholders referred to therein; and
12. Consent and Agreement dated March, 1994 between Kmart, Borrower
and Lender.
We have also reviewed forms of the documents (collectively, the
"Assignment Documents") identified in numbers 1-2 following:
1. The Assignment Agreement from the Note Trustee to the Bond Trustee
(the "Assignment"); and
2
<PAGE> 31
2. The UCC-3 Assignment of the Fixture Filing from the Lender to the
Note Trustee.
We also have examined and, to the extent we have deemed proper, relied
upon certain certificates, originals or copies certified to our
satisfaction, of public officials and the Borrower, and such other
documents we deemed necessary to make the opinions set forth below.
We have not made or undertaken to make any investigation as to factual
matters or as to the accuracy or completeness of any representation,
warranty, data or any other information, whether written or oral, that may
have been made by or on behalf of the parties to the Documents or otherwise
(but have no actual knowledge of the inaccuracy or incompleteness of any of
the same), and we assume, in giving this opinion, that none of such
information, if any, contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements made, in
light of the circumstances in which they are made, not misleading.
With your permission, we have also assumed in rendering this opinion
that:
a. The Borrower is duly organized, validly existing and in
good standing under the laws of the State of ________ and has all
requisite power and all material governmental licenses,
authorizations, consents and approvals necessary to own and operate
its Property and the Borrower has been qualified to do business in the
state in which its Property is located.
b. The Documents have been duly executed and delivered by the
Borrower and by all other parties thereto.
c. The Borrower owns the Property covered by the Mortgage.
d. Each of the Documents (other than the Mortgage) executed by
the Borrower constitutes a legal, valid and binding obligation of such
person or entity under the governing law specified therein, if
governed by the laws of a State other than [State].
e. The Assignment Documents have been duly executed and
delivered by all parties thereto, and the execution, delivery and
performance thereof is within the powers of each such party and has
been authorized by all appropriate action of such party, which is duly
3
<PAGE> 32
organized, validly existing and in good standing under the laws of the
State of its formation.
Based upon the foregoing, it is our opinion that:
1. Neither the Lender nor the Bond Trustee is required to pay any tax
or be qualified to do business or file any designation for service of
process or file any reports in the State of [State] or comply with any
statutory or regulatory rule or requirement applicable only to financial
institutions chartered or qualified to do business in the State of [State]
solely by reason of its execution and delivery or acceptance of the
Mortgage or the other Documents or by any reason of its participation in
any of the transactions under or contemplated by the Documents, including,
without limitation, the purchase or holding of the Notes as contemplated
thereby, the making and receipt of any payments pursuant thereto, and the
validity and enforceability of, and the exercise of any right or remedy
under or with respect to the Mortgage and the other Documents will not be
affected by any failure to so qualify or file.
2. No consent, approval or other authorization of, or registration,
declaration or filing with, any [State] court or governmental agency or
commission is required for the valid execution and delivery of any of the
Documents or the Assignment Documents, or for the validity or
enforceability thereof, or for the performance by the parties of their
obligations thereunder, except for the due recordation or filing
requirements set forth in paragraphs 6 and 7 hereof.
3. The execution and delivery of the Documents, compliance with the
provisions thereof and the consummation of the transactions therein
contemplated will not result in (a) a breach or violation of any law or
governmental rule or regulation applicable to the parties thereto now in
effect or (b) the creation or imposition of any lien, claim or encumbrance
(other than the liens created by the Documents) upon the respective
property or revenues of the parties thereto.
4. The Documents are legal, valid and binding instruments enforceable
by the Bond Trustee against the Borrower and the Mortgaged Property (as
defined in the Mortgage) in accordance with their respective terms, except
as such enforceability may be limited (a) by applicable bankruptcy,
insolvency, reorganization, moratorium or similar debtor relief laws, (b)
by the application of equitable principles (whether such enforcement is
sought by proceedings in equity or at law) and (c) in that certain of the
remedial provisions of the Mortgage may be limited by applicable law,
provided that such limitations do not make the remedies provided for in the
Mortgage inadequate for the practical
4
<PAGE> 33
realization of the benefits of the security intended to be afforded thereby.
Each of the Documents which provides for its governing law to be the law of the
State of New York would, if governed by the laws of the State of [State]
constitute a legal, valid and binding obligation of the Borrower, enforceable
in accordance with its terms, subject to the exceptions noted in the preceding
sentence.
5. The transactions contemplated and payments made and to be received
pursuant to the Documents do not violate the usury laws of the State of
[State].
6. The Mortgage, the Lease Assignment and the Assignment are each in
form satisfactory for recording in the [Office of the County Recorder] of
[______] County in the State of [State] and upon such recordation shall
constitute a perfected security interest in and a perfected lien upon the
property or rights described therein, including, without limitation, the Rents
(as such term is defined in the Note Indenture) in each case in favor of the
Bond Trustee. No other recordation or filing is required to perfect or
preserve such interest or lien.
7. The Mortgage creates a security interest in the Fixtures (as defined
in the Mortgage) and no financing or other statements are required to be filed
to perfect such security interests under the Uniform Commercial Code of
[State]. Upon the recordation or filing of the UCC-3 Assignment of the Fixture
Filing in the [office of the County Recorder] of [ ] County, State of
[State], the Bond Trustee shall have a perfected security interest and
perfected lien upon the collateral described therein pursuant to the Uniform
Commercial Code of [State].
8. No fees, taxes or other charges, including, without limitation,
intangible, documentary, stamp, mortgage, transfer or recording taxes or
similar charges, are payable to the State of [State] or to any jurisdiction
therein on account of the execution, delivery or ownership of the Notes, the
Mortgage or the other Documents, the creation of the indebtedness evidenced or
secured thereby, the creation of the liens and security interests thereunder,
or the filing, recording or registration of the Mortgage or the Fixture Filing,
except for nominal filing or recording fees.
9. The Mortgage and Fixture Filing conform to all requirements of the
laws of the State of [State]. Enforcement of the remedies provided in the
Mortgage with respect to the Borrower thereunder or its property will not,
except as expressly limited by the terms of the Mortgage, deprive any secured
party of its right to seek a deficiency judgment nor will it limit the
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<PAGE> 34
right of the Bond Trustee to foreclose on other security or collateral securing
the Notes.
10. In connection with the remedies provided in the Mortgage:
a. The exercise at any time and in any order of any remedies available
against the property covered by the Uniform Commercial Code as adopted by
the State of [State] or the other Property will not be affected by, nor
will the exercise at any time of such remedies affect, the exercise of any
remedies relating to the Land and Improvements (as such terms are defined
in the Mortgage), unless the Notes and Mortgage have been paid and
performed in full.
b. The exercise of any remedies with respect to any security or
collateral located outside of the State of [State] securing the Notes will
not affect or limit the Bond Trustee's ability to foreclose against, or
exercise any other remedies with respect to, the Property, except to the
extent that the fair value of such security or collateral so sold or
disposed of has been appropriately applied to the payment of the Notes, or
unless the Notes have been paid and performed in full.
c. There is no "one form of action" or similar law in the State of
[State] which would limit the Bond Trustee or any other secured party to
choosing only one remedy to enforce their rights under the Mortgage and the
other Documents.
11. After a sale of the Premises (as defined in the Mortgage) through
foreclosure, power of sale or otherwise, by or for the Lender, the Bond Trustee
may exercise any rights and options accorded to the Borrower pursuant to the
Option, as owner of the Premises.
We are admitted to practice only in the State of , and the
foregoing opinions are limited to the laws of said State and the federal laws
of the United States of America.
Very truly yours,
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<PAGE> 35
Schedule A
<PAGE> 36
Schedule B
<PAGE> 1
transaction under Sections 406 or 407 of ERISA or Section 4975 of the Code.
Bond - Any of the Secured Lease Bonds, Series A, Series B, Series C,
Series AR, Series BR or Series CR in the forms of Exhibit A, Exhibit B or
Exhibit C hereto, respectively, as the context may indicate.
Bond Account - Any of the Pool A Bond Account, the Pool B Bond Account or the
Pool C Bond Account.
Bond Indenture - This Collateral Trust Indenture as originally
executed or as it may from time to time be supplemented, modified or amended by
one or more indentures or other instruments supplemental hereto entered into
pursuant to the applicable provisions hereof.
Bond Owner - Any Person acquiring a beneficial interest in Book-Entry
Bonds of any Series, which ownership shall be reflected on the books of the
Depository or on those of a Depository Participant or an indirect Depository
Participant.
Bond Trustee - The Bank of New York, a New York banking corporation,
as trustee of the trust established hereby and any successor bond trustee
hereunder.
Book-Entry Bonds - Any of the Offered Bonds, which initially shall be
registered in the name of the Depository or its nominee, the ownership of which
is reflected on the books of the Depository or on the books of a person
maintaining an account with the Depository (whether directly, as a "Depository
Participant", or indirectly, as an indirect Depository Participant) in
accordance with the rules of the Depository and as described in Article 2.
Business Day - Has the meaning assigned in the Note Indentures.
Closing Date - March , 1994.
Code - The Internal Revenue Code of 1986, as amended.
Commencement Date - The first Payment Date on which interest or
principal is payable under the terms of the Bonds.
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<PAGE> 2
Corporate Trust Office - The principal office of the Bond Trustee at
which at any particular time its corporate trust business shall be
administered; at the date hereof the Corporate Trust Office is located at 101
Barclay Street, New York, New York 10286.
Default - Any condition or event which constitutes or would constitute
an Event of Default hereunder either with or without notice, lapse of time, or
both.
Definitive Bonds - Has the meaning specified in Section 2.1.1 of this
Bond Indenture.
Depository - The initial Depository shall be the Depository Trust
Company ("DTC"), the nominee of which is Cede & Co., or any other organization
agreed to by the parties hereto and registered as a "clearing agency" pursuant
to Section 17A of the Exchange Act. The Depository shall initially be the
registered Holder of the Book-Entry Bonds. The Depository shall at all times
be a "clearing corporation" as defined in Section 8-102(3) of the New York UCC.
Depository Agreement - With respect to any Series of Book-Entry Bonds,
the agreement among the Issuer, the Bond Trustee and the initial Depository,
dated as of the Closing Date and substantially in the form of Exhibit D hereto.
Depository Participant - A broker, dealer, bank or other financial
institution or other person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Directly Operate - With respect to any REO, the furnishing or
rendering of services to the tenants thereof, the management or operation of
such REO, the holding of such REO primarily for sale to customers, the
performance of any construction work thereon or any use of such REO in a trade
or business conducted by the Trust Estate, in each case other than through an
Independent Contractor; provided, however, that a Person designated by, and
acting on behalf of the Bond Trustee shall not be considered to Directly
Operate an REO Property solely because such Person on behalf of the Bond
Trustee establishes rental terms, chooses tenants, enters into or renews
leases, deals with taxes and insurance, or makes decisions as to repairs or
capital expenditures with respect to such REO.
Disqualified Organization - Either (a) the United States, (b) any
state or political subdivision thereof, (c) any foreign government, (d) any
international organization, (e) any agency or instrumentality of any of the
foregoing, (f) any tax-exempt organization (other than a cooperative described
in section 521 of the Code) that is exempt from federal income tax unless such
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<PAGE> 3
organization is subject to tax under the unrelated business taxable income
provisions of the Code, (g) any organization described in section 1381(a)(2)(C)
of the Code or (h) any other entity identified as a disqualified organization
by the REMIC Provisions. A corporation will not be treated as an
instrumentality of the United States or any state or political subdivision
thereof if all of its activities are subject to tax and, with the exception of
the Federal Home Loan Mortgage Corporation, a majority of its board of
directors is not selected by such governmental unit.
ERISA - The Employee Retirement Income Security Act of 1974, as
amended.
Event of Default - Has the meaning specified in Article VII of this
Bond Indenture.
Exchange Act - The Securities Exchange Act of 1934, as amended.
Extended Period - Has the meaning specified in Section 20.10.1 of this
Bond Indenture.
Extension - Has the meaning specified in Section 20.10.1 of this Bond
Indenture.
Fee Properties - Collectively, those of the Properties other than the
Leasehold Properties.
Global Bonds - Physical certificates representing the Offered Bonds
issued in the name of and delivered to the Depository to facilitate the
issuance of the Book-Entry Bonds.
Holder or Bondholder - The Person in whose name a Bond is registered
in the Register.
Independent Contractor - Either (a) any Person that would be an
"independent contractor" with respect to any Pool REMIC or the Trust Estate
within the meaning of section 856(d)(3) of the Code if such Pool REMIC or the
Trust Estate were a real estate investment trust (except that, in applying that
section, more than 35% of the outstanding principal balance of any Series of
Bonds shall be deemed to be more than 35% of the interest in both the related
Pool REMIC and Trust Estate), so long as the Trust Estate does not receive or
derive any income from such Person, the relationship between such Person and
the Trust Estate is at arm's length and such Person is not an employee of the
REMICs, the Bond Trustee or the Tax Administrator, all within the meaning of
Treasury Regulation Section 1.856-4(b)(5), or (ii) any other Person (including
the Tax Administrator) upon receipt by the Bond Trustee of an Opinion of
Counsel to the effect that the taking of any action in respect of any REO by
such Person, subject to any
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<PAGE> 4
conditions therein specified, that is otherwise herein contemplated to be taken
by an Independent Contractor will not cause such REO to cease to qualify as
"foreclosure property" within the meaning of section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of section
860D(a) of the Code), or cause any income realized in respect of such REO to
fail to qualify as Rents from Real Property.
Investment Letter - Has the meaning specified in Section 2.3.1 of this
Bond Indenture, a form of which is attached hereto as Exhibit F.
IRS - The Internal Revenue Service.
Issuer - FGHK, Inc., a New York corporation, its successors and
assigns.
Issuer Documents - The Note Assignment, this Bond Indenture, the Bonds,
the pledge of the Notes to the Bond Trustee, the Master Indemnification
Agreement and the First Amendment to the Master Indemnification Agreement.
Kmart - Kmart Corporation, a Michigan corporation, its successors and
assigns.
Lease Event of Default - Has the meaning assigned in the Leases to the
term "Event of Default" thereunder.
Leasehold Estate - Collectively, the interests of the related Owner
Trustee in a Leasehold Property created by the related ground lease and a fee
estate in the improvements located thereon.
Leasehold Properties - Collectively, those Properties listed on
Schedule G to the Purchase Agreement and designated as "Leasehold Properties"
thereon.
Leases - Collectively, the leases of the Properties, each dated as of
December 15, 1993, as amended as of the date hereof, between the Owner Trustee,
as lessor, and Kmart, as lessee, as supplemented or amended (each individually,
a "Lease").
Majority in Interest - Collectively, the Holders of a majority of the
aggregate principal amount of the Offered Bonds then outstanding.
Make-Whole Premium - The sum of the Make-Whole Premiums on all related
Notes being redeemed. The "Make-Whole Premium", if any, on any Note shall mean
an amount equal to the positive difference, as of the date of determination,
between (a) the present value of all future payments of principal and interest,
including any principal amount due at maturity, discounted semi-
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<PAGE> 5
annually at an interest rate per annum equal to (i) the average yield for "This
Week", as provided in the Treasury Constant Maturity Yield Index published by
the Federal Reserve Bank of New York in the Federal Reserve Statistical Release
designated "H.15(519) Selected Interest Rates", or a successor publication,
published next preceding two business days prior to redemption, for instruments
having a maturity corresponding to the remaining Average Life of such Note (the
"TCMYI") plus (ii) 50 basis points, and (b) the outstanding principal amount of
such Note to be redeemed; provided, however, that if there is no TCMYI for
instruments having a maturity corresponding to the Average Life of such Note,
then the TCMYI shall equal the straight-line interpolation between the interest
rates on the two respective Treasury issues greater and lesser, most closely
approximating the average life of the Note (rounded to the fourth decimal
place); and provided further that if the Average Life of such Note is less than
one year, the one-year TCMYI shall be used.
Master Indemnification Agreement - The Master Indemnification Agreement
dated as of December 15, 1993, as amended on the date hereof, between Kmart and
the Owner Participant, the Remainder Purchaser, the Owner Trustee, the
Remainder Owner Trustee, the Note Trustee, the Bond Trustee, the Issuer and
the Holders of the Residual Bonds, as the same may be amended, modified or
supplemented from time to time in accordance with the provisions thereof.
Mortgages - The mortgages, deeds of trust and deeds to secure debt,
dated as of December 15, 1993, each creating a first-mortgage lien on the
related Property, including the improvements thereon, from the Owner Trustee,
as mortgagor, to or for the benefit of the Note Trustee, as mortgagee, for the
benefit of the Issuer, as the Holder of the Notes, as at such time supplemented
or amended.
New Lease - Any lease of an REO entered into on behalf of the Trust
Estate, including any lease renewed, modified or extended on behalf of the
Trust Estate (if the Bond Trustee, or its agent, has the right to renegotiate
the terms of such lease).
New York UCC - The Uniform Commercial Code of the State of New York.
Non-U.S. Person - A foreign person within the meaning of Treasury
Regulations Section 1.860G-3(a)(1) (i.e., a person other than (a) a citizen or
resident of the United States, (b) a corporation, limited-liability company,
partnership or other entity that is organized under the laws of the United
States or any jurisdiction thereof or therein or (c) an estate or trust that is
subject to United States federal income taxation regardless of the source of
its income) that would be subject to
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<PAGE> 6
United States income tax withholding pursuant to Section 1441 or 1442 of the
Code on income derived from a Residual Bond.
Note Assignment - The assignment dated the date hereof, from the Issuer
to the Bond Trustee, assigning the Notes and the rights of the Issuer under the
Note Indentures to the Bond Trustee.
Note Indenture Event of Default - Has the meaning assigned to the term
"Event of Default" in the Note Indentures.
Note Indentures - With respect to each of the Properties, the related
Trust Indenture, Assignment of Lease and Rents and Security Agreement, dated as
of December 15, 1993, as supplemented and restated as of the date hereof,
between the applicable Owner Trustee and the Note Trustee, as the same may be
amended, modified or supplemented from time to time in accordance with the
provisions thereof.
Note Trustee - The Bank of New York, not in its individual capacity,
but solely as trustee under the various Note Indentures, or any successor
trustee thereunder.
Notes - The Series A Notes, Series B Notes and Series C Notes issued
by the applicable Owner Trustee pursuant to the Note Indentures; a Series A
Note, a Series B Note and a Series C Note will be issued in respect of each
Property.
Offered Bonds - The Series A Bonds, Series B Bonds and Series C Bonds,
each in the form of Exhibit A and Exhibit C hereto.
Officer's Certificate - A certificate of the Issuer signed by the
President, any Vice President or other officer authorized to so sign by either
the Board of Directors or the by-laws of the Issuer.
Opinion of Counsel - A written opinion of counsel in form and
substance acceptable to the Bond Trustee.
Owner Participant - The owner participant under the Purchase Agreement.
Owner Trust - The owner trust established pursuant to the relevant
Trust Agreement.
Owner Trustee - With respect to the Property located in the State of
Ohio, Society National Bank, acting not in its individual capacity, but solely
as owner trustee under the related Trust Agreement; with respect to the 23
other Properties, Shawmut Bank Connecticut, National Association, acting not in
its
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<PAGE> 7
individual capacity, but solely as owner trustee under each of the related
Trust Agreements.
Payment Date - Each date on which scheduled payments of principal or
interest are due and payable on the Bonds, except that if any Payment Date
falls on a day that is not a Business Day, then the Payment Date shall be the
succeeding Business Day.
Permitted Investments - An interest-bearing investment (a) having a
credit rating no lower than the rating on the lowest rated Series of Offered
Bonds, except in the case of a deposit with the Bond Trustee in its capacity as
a bank (an "In-House Deposit"), (b) that matures no later than the Business Day
immediately preceding the next succeeding Payment Date or, in the case of an
In-House Deposit, no later than such Payment Date, and (c) that does not
evidence the right to receive only the interest on obligations underlying the
investment or provide a yield to maturity at par higher than 120% of the yield
to maturity at par of such obligations.
Permitted Transferee - A person to whom a Residual Bond may be
transferred consistent with the provisions of Section 2.4 hereof.
Person - Any individual, corporation, limited-liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
Plan Asset Regulations - The Department of Labor regulations set forth
in 29 C.F.R. Section 2510.3-101, as amended from time to time.
Pool A Asset Group - The portion of the assets of the Issuer which have
been pledged or assigned to the Trust Estate consisting of the Series A Notes,
certain interests of the Note Trustee assigned to the Bond Trustee pursuant to
the Assignment, the Pool A Bond Account, the Pool A Reserve Fund and all
amounts or assets received with respect thereto.
Pool A Bond Account - The separate account created and initially
maintained by the Bond Trustee in the name of the Bond Trustee for the benefit
of the Holders of the Series A Bonds and Series AR Bonds and designated "The
Bank of New York, in trust for the registered holders of the Secured Lease
Bonds, Series A and Series AR". Funds in the Pool A Bond Account shall be held
in trust for the Holders of the Series A Bonds and Series AR Bonds for the uses
and purposes set forth in this Bond Indenture.
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<PAGE> 8
Pool A REMIC - The REMIC comprised of the Pool A Asset Group.
Pool A Reserve Fund - The Reserve Fund established pursuant to Section
3.1 hereof to be used for the payment of the Bond Trustee's fees and other
expenses of the Pool A REMIC.
Pool B Asset Group - The portion of the assets of the Issuer which have
been pledged or assigned to the Trust Estate consisting of the Series B Notes,
certain interests of the Note Trustee assigned to the Bond Trustee pursuant to
the Assignment, the Pool B Bond Account, the Pool B Reserve Fund and all
amounts or assets received with respect thereto.
Pool B Bond Account - The separate account created and initially
maintained by the Bond Trustee in the name of the Bond Trustee for the benefit
of the Holders of the Series B Bonds and Series BR Bonds and designated "The
Bank of New York, in trust for the registered holders of the Secured Lease
Bonds, Series B and Series BR". Funds in the Pool B Bond Account shall be held
in trust for the Holders of the Series B Bonds and Series BR Bonds for the uses
and purposes set forth in this Bond Indenture.
Pool B REMIC - The REMIC comprised of the Pool B Asset Group.
Pool B Reserve Fund - The Reserve Fund established pursuant to Section
3.1 hereof to be used for the payment of the Bond Trustee's fees and other
expenses of the Pool B REMIC.
Pool C Asset Group - The portion of the assets of the Issuer which have
been pledged or assigned to the Trust Estate consisting of the Series C Notes,
certain interests of the Note Trustee assigned to the Bond Trustee pursuant to
the Assignment, the Pool C Bond Account, the Pool C Reserve Fund and all
amounts or assets received with respect thereto.
Pool C Bond Account - The separate account created and initially
maintained by the Bond Trustee in the name of the Bond Trustee for the benefit
of the Holders of the Series C Bonds and Series CR Bonds and designated "The
Bank of New York, in trust for the registered holders of the Secured Lease
Bonds, Series C and Series CR". Funds in the Pool C Bond Account shall be held
in trust for the Holders of the Series C Bonds and Series CR Bonds for the uses
and purposes set forth in this Bond Indenture.
Pool C REMIC - The REMIC comprised of the Pool C Asset Group.
Pool C Reserve Fund - The Reserve Fund established pursuant to Section
3.1 hereof to be used for the payment of the Bond Trustee's fees and other
expenses of the Pool C REMIC.
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<PAGE> 9
Properties - The Fee Properties and the Leasehold Properties (each
individually, a "Property").
Purchase Agreement - Has the meaning specified in each Note Indenture,
as appropriate.
Record Date - As to any Payment Date, the 15th day of the calendar
month prior to the month in which such Payment Date occurs.
Redemption Date - Has, for each Series of Bonds, the meaning specified
in the Note Indentures with respect to the related Series of Notes.
Redemption Price - With respect to any Bond or portion thereof to be
redeemed, 100% of the unpaid principal amount thereof, or of the portion to be
redeemed, plus accrued interest thereon through the Redemption Date and, where
specifically provided for herein, the applicable Make-Whole Premium, if any,
pursuant to Section 3.6(b) of this Bond Indenture.
Register - Has the meaning specified in Section 2.3 of this Bond
Indenture.
Registrar - The Bond Trustee and any successor Registrar or additional
Registrar as may be appointed by the Issuer.
Remainder Purchaser - FGHK, Ltd., A Wyoming Limited Liability Company,
its successors and assigns.
REMIC - A "real estate mortgage investment conduit" within the meaning
of the REMIC Provisions.
REMICs - Has the meaning specified in Section 2.6.1 of this Bond
Indenture.
REMIC Provisions - Provisions of the federal income tax law relating
to REMICs, which appear at sections 860A through 860G of Subchapter M of
Chapter 1 of the Code, and related provisions, and proposed, temporary and
final regulations promulgated thereunder and published rulings and
announcements, as the foregoing may be in effect from time to time as well as
provisions of applicable state laws.
Rents from Real Property - With respect to any REO, gross income of
the character described in Code section 856(d) and Treasury regulations
thereunder.
REO - A Property acquired by the Bond Trustee as the result of a
default on one or more Notes through foreclosure, deed-in-lieu of foreclosure,
or other mechanism in accordance with the applicable Note Indenture.
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<PAGE> 10
REO Disposition - The receipt by the Bond Trustee of insurance
proceeds and other payments and recoveries (including liquidation proceeds)
from the sale or other disposition of an REO.
Reserve Fund - Any of the Pool A Reserve Fund, the Pool B Reserve Fund
or the Pool C Reserve Fund, as appropriate.
Reserve Fund Amounts - Has the meaning specified in Section 3.13.1 of
this Bond Indenture.
Residual Bonds - The Series AR Bonds, Series BR Bonds and Series CR
Bonds, each in the form of Exhibit B and Exhibit C hereto.
Responsible Officer - Has the meaning assigned in the Note Indentures.
Rule 144A Letter - Has the meaning specified in Section 2.3.1 of this
Bond Indenture, a form of which is attached hereto as Exhibit G.
Securities Act - The Securities Act of 1933, as amended.
Series - With respect to the Bonds, collectively, all of the Bonds
designated as either the Series A Bonds, Series AR Bonds, Series B Bonds,
Series BR Bonds, Series C Bonds or Series CR Bonds and, with respect to the
Notes, collectively, all of the Notes designated as either Series A Notes,
Series B Notes or Series C Notes.
Series A Bonds - $_________ principal amount of____% Secured Lease
Bonds, Series A, due _______________, the form of which is attached hereto as
Exhibit A and Exhibit C.
Series A Notes - The 24 mortgage notes designated as "Series A Notes"
thereon, from the appropriate Owner Trustee, as maker, to the Issuer, as payee,
in an aggregate principal amount equal to $__________, and any notes issued in
exchange therefor or in replacement thereof.
Series AR Bonds - The Secured Lease Bonds, Series AR, representing the
residual interest in the Pool A REMIC, having no principal amount and entitled
to no scheduled payments of principal or interest, the form of which is
attached hereto as Exhibit B and Exhibit C.
Series B Bonds - $_________ principal amount of____% Secured Lease
Bonds, Series B, due _______________, the form of which is attached hereto as
Exhibit A and Exhibit C.
Series B Notes - The 24 mortgage notes designated as "Series B Notes"
thereon, from the appropriate Owner Trustee, as maker, to the Issuer, as payee,
in an aggregate principal amount equal
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<PAGE> 11
to $__________, or any notes issued in exchange therefor or in replacement
thereof.
Series BR Bonds - The Secured Lease Bonds, Series BR, representing the
residual interest in the Pool B REMIC, having no principal amount and entitled
to no scheduled payments of principal or interest, the form of which is
attached hereto as Exhibit B and Exhibit C.
Series C Bonds - $_________ principal amount of____% Secured Lease
Bonds, Series C, due _______________, the form of which is attached hereto as
Exhibit A and Exhibit C.
Series C Notes - The 24 mortgage notes designated as "Series C Notes"
thereon, from the appropriate Owner Trustee, as maker, to the Issuer, as payee,
in an aggregate principal amount equal to $__________, or any notes issued in
exchange therefor or in replacement thereof.
Series CR Bonds - The Secured Lease Bonds, Series CR, representing the
residual interest in the Pool C REMIC, having no principal amount and entitled
to no scheduled payments of principal or interest, the form of which is
attached hereto as Exhibit BR and Exhibit C.
Sinking Fund - With respect to each Series of Bonds, the sinking fund
for each such Series to be established and to operate as provided in Section
3.2 of this Bond Indenture.
Special Tax Consent - The written consent of the Holder of a Residual
Bond to any tax (or risk thereof) arising out of a proposed transaction or
activity that may be imposed upon such Holder or that may affect adversely the
value of such Holder's Residual Bond.
Special Tax Opinion - An Opinion of Counsel that a proposed
transaction or activity will not (a) adversely affect the status of any REMIC
as a REMIC or of the Offered Bonds as the regular interests therein, (b) affect
the payment of interest or principal on the Offered Bonds or (c) result in the
encumbrance of the collateral held by the Bond Trustee by a tax lien.
Startup Day - With respect to each of the REMICs, March___, 1994.
Stated Maturity - When used with respect to any Bond or any
installment of interest thereon, the date specified in such Bond as the fixed
date on which the principal of such Bond or such installment of interest is due
and payable, except that if such date does not fall on a Business Day, then the
Stated Maturity shall be the succeeding Business Day.
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Supplemental Indenture - Any supplemental indenture to this Bond
Indenture executed by the Bond Trustee pursuant to Article XVI hereof.
Tax Administrator - The Bank of New York or any designee qualified
under the REMIC Provisions to perform the functions of the Tax Administrator
hereunder (including the function of serving as the Tax Matters Person).
Tax Matters Person - The Person or Persons designated from time to
time hereunder to act as tax matters person (within the meaning of the REMIC
Provisions) of a REMIC.
Transferee Agreement - Has the meaning specified in Section 2.4.1 of
this Bond Indenture, a form of which is attached hereto as Exhibit H.
Transferor Certificate - Has the meaning specified in Section 2.4.1 of
this Bond Indenture, a form of which is attached hereto as Exhibit E.
Treasury Constant Maturity Yield Index - The average yield for "This
Week" as reported by the Federal Reserve Board in Federal Reserve Statistical
Release H.15 (519) (or, if such Statistical Release is no longer published, any
publicly available source of similar market data).
Trust Agreements - The 24 Trust Agreements, each dated as of December
15, 1993 and each between the Owner Participant and the appropriate Owner
Trustee with respect to a separate Property.
Trust Estate - As defined in the securing clause of this Bond
Indenture.
Trust Indenture Act - The Trust Indenture Act of 1939, as amended.
U.S. Person - A Person other than a Non-U.S. Person.
Withholding Agent - The Bond Trustee or its designated paying agent or
other person who is liable to withhold federal income tax from a distribution
on a Residual Bond under section 1441 and 1442 of the Code and the regulations
thereunder.
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ARTICLE II.
2. The Bonds.
2.1. Book-Entry Bonds.
2.1.1. Issuance and Registration.
The Offered Bonds initially shall each be issued in the form of one or
more physical certificates (the "Global Bonds") representing the Book-Entry
Bonds, to be delivered to the Depository by or on behalf of the Issuer in the
form attached hereto as Exhibits A and C (Reverse of Bonds). The Bonds shall
be issuable in the denominations set forth below. The aggregate principal
amount of Bonds that may be authenticated and delivered hereunder is limited to
the aggregate sum of $___________, except for Bonds authenticated and
delivered pursuant to Sections 2.2 or 2.3 hereof. Each fully registered Bond
shall be dated the date of its authentication. Each fully registered Bond
shall be numbered, lettered or other wise distinguished in such manner or in
accordance with such plans as the Issuer executing the same may determine with
the approval of the Bond Trustee. Each fully registered Bond may be issued
with appropriate insertions, omissions, substitutions or variations, and may
have imprinted or otherwise reproduced thereon such legend or legends, not
inconsistent with the provisions of this Bond Indenture, as may be required to
comply with any law or with any rules or regulations pursuant thereto, or with
the rules of any securities market in which the Bond of such series is
admitted to trading, or to conform to general usage.
Each of the Bonds shall be issuable in a minimum denomination
of $1000 and integral multiples thereof. The Series A Bond, Series B Bond and
Series C Bond initially shall each be issued only as a single Bond in
registered form in the denominations of $________, $________ and $________,
respectively. Series AR Bonds, Series BR Bonds and Series CR Bonds shall each
be issued only as a single Bond in registered form without denomination.
The Bonds shall be executed on behalf of the Issuer by any of
its authorized officers. The signature of any of such authorized officer on
the Bond may be manual or facsimile. The Bonds shall be authenticated by the
Bond Trustee.
Bonds bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Issuer shall bind
the Issuer, notwithstanding that any of such individuals have ceased to hold
such offices prior to the authentication and delivery of such Bond or did not
hold such offices at the date of execution of this Bond Indenture.
No Bond shall be secured by or entitled to any benefit under
this Bond Indenture or be valid or obligatory for any purpose unless there
appears on such Bond a certificate of authentication in the form provided for
in the Bonds, executed by the Bond Trustee by the manual or facsimile
signature of one of its authorized officers or signatories, and such
certificate upon any Bond shall be conclusive evidence, and the only evidence,
that such Bond has been duly authenticated and delivered hereunder.
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The Offered Bonds shall initially be registered on the
Register in the name of the Depository or its nominee, and no Bond Owner shall
be entitled to receive a Definitive Bond representing such Bond Owner's
interest in such Bonds, except as provided in Section 2.2.1 hereof. Unless and
until definitive, fully registered Bonds ("Definitive Bonds") have been issued
to the Bond Owners of such Bonds pursuant to Section 2.2.1:
a. the Issuer and the Bond Trustee may deal with the
Depository and the Depository Participants for all purposes (including the
making of distributions) as the authorized representative of such Bond Owners;
b. transfer of the Book-Entry Bonds may not be registered by
the Bond Trustee except to another Depository;
c. the rights of such Bond Owners shall be exercised only
through the Depository and the Depository Participants and shall be limited to
those established by law, by agreements between such Bond Owners and the
Depository and/or the Depository Participants and by the reasonable rules and
procedures of the Depository and Depository Participants. Pursuant to the
Depository Agreement, unless and until Definitive Bonds are issued with respect
to the Offered Bonds pursuant to Section 2.2.1, the Depository will make
book-entry transfers among the Depository Participants and receive and transmit
distributions of principal and interest on the related Bonds to such Depository
Participants;
d. the Depository may collect its usual and customary fees,
charges and expenses from its Depository Participants;
e. the Bond Trustee may rely and shall be fully protected in
relying upon information furnished by the Depository with respect to its
Depository Participants and furnished by the Depository Participants with
respect to indirect participating firms and Persons shown on the books of such
indirect participating firms as direct or indirect Bond Owners;
f. to the extent that the provisions of this Section conflict
with any other provisions of this Bond Indenture, the provisions of this
Section shall control; and
g. neither the Issuer nor the Bond Trustee nor any Affiliate
thereof will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of a
Book-Entry Bond or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
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<PAGE> 15
For purposes of any provision of this Bond Indenture requiring
or permitting actions with the consent of, or at the direction of, Holders,
such direction or consent may be given by Bond Owners (acting through the
Depository and the Depository Participants) owning Book- Entry Bonds evidencing
the requisite percentage of principal amount of such Series of Bonds.
2.1.2. Communication through Depository. Whenever any notice or other
communication is required to be given to Holders of any Series of Offered
Bonds, unless and until Definitive Bonds shall have been issued to the related
Bond Owners, the Bond Trustee shall give all such notices and communications to
the Depository, who shall communicate them to the Depository Participants.
2.2. Issuance of Definitive Bonds. If, after Book-Entry Bonds have
been issued, (a) either the Issuer or the Depository advises the Bond Trustee
that the Depository is no longer willing or able to discharge properly its
responsibilities under the Depository Agreement with respect to such Bonds and
the Bond Trustee and the Issuer are unable to locate a qualified successor, (b)
at its sole option, the Issuer advises the Bond Trustee that it elects to
terminate the book-entry system with respect to such Bonds through the
Depository or (c) after the occurrence and continuation of an Event of Default,
a Majority in Interest advises the Bond Trustee and the Depository in writing
through the Depository Participants that the continuation of a book-entry
system with respect to such Bonds through the Depository (or its successor) is
no longer in the best interests of such Bond Owners, then the Bond Trustee
shall notify all such Bond Owners, through the Depository, of the occurrence of
any such event and of the availability of Definitive Bonds to Bond Owners
requesting the same. The Issuer shall thereupon execute and deliver to the
Bond Trustee Definitive Bonds and shall direct the Bond Trustee to authenticate
and deliver such Definitive Bonds upon surrender to the Bond Trustee of the
Global Bonds by the Depository, accompanied by registration instructions from
the Depository for registration. Neither the Issuer nor the Bond Trustee shall
be liable for any delay in delivery of such instructions and each may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of such Definitive Bonds, all references herein to
obligations imposed upon or to be performed by the Depository shall be deemed
to be imposed upon and performed by the Bond Trustee, to the extent applicable
with respect to such Definitive Bonds and the Bond Trustee shall recognize the
Holders of such Definitive Bonds as Holders hereunder.
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<PAGE> 16
2.3. Registration, Exchange or Transfer of Bonds. The Bond Trustee is
hereby appointed Registrar for the purpose of registering Bonds and transfer of
Bonds as herein provided. The Bond Trustee, as Registrar, shall cause to be
kept at the Corporate Trust Office a register (the "Register") for the
registration, subject to such reasonable regulations as it may prescribe, of
Bonds and of transfers of Bonds of each Series. If the Issuer, with the
written consent of a Majority in Interest, appoints a successor Registrar or
additional Registrars, the registers maintained by all such Registrars shall,
collectively, comprise the Register. The ownership of the Bonds (including,
for purposes of Article XIX hereof) shall be proved by the Register. Prior to
due presentment for registration of transfer, the Person in whose name any Bond
is registered on the Register shall be deemed to be the absolute owner of such
Bond for the purpose of receiving payment of principal of, premium, if any, and
interest on such Bond and for all other purposes whatsoever, regardless of any
notice to anyone to the contrary.
Upon surrender for registration of transfer of any Bond at the
Corporate Trust Office and provided that all requirements for transfer
established hereunder have been satisfied, the Issuer shall execute, and the
Bond Trustee shall authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Bonds of the same Series, of any
authorized denominations and of a like aggregate principal amount. No transfer
of Bonds shall be effective unless such transfer has been recorded in the
Register.
At the option of any Holder, such Holder's Bonds of any Series may be
exchanged for other Bonds of the same Series in authorized denominations of an
equal aggregate principal amount, upon surrender of the Bonds to be exchanged
at the Corporate Trust Office. Whenever any Bonds are so surrendered for
exchange, the Issuer shall execute, and the Bond Trustee shall authenticate and
deliver, the Bonds that the Holder making the exchange is entitled to receive.
All Bonds issued upon any registration of transfer or exchange of
Bonds shall be the valid obligations of the Issuer, evidencing the same
obligations, and entitled to the same security and benefits under this Bond
Indenture, as the Bonds surrendered upon such registration of transfer or
exchange so that neither gain nor loss in interest shall result from such
registration of transfer, exchange or replacement.
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<PAGE> 17
Every Bond presented or surrendered for registration of transfer or
exchange shall (if so required by the Registrar) be duly endorsed by, or be
accompanied by a written instrument of transfer in form satisfactory to the
Bond Trustee duly executed by, the Holder thereof or its attorney duly
authorized in writing.
All Bonds surrendered for payment or redemption in whole, or
registration of transfer or exchange shall, if surrendered to any Person other
than the Bond Trustee, be delivered to the Bond Trustee for cancellation. The
Issuer may at any time deliver to the Bond Trustee for cancellation any Bonds
previously authenticated and delivered hereunder that the Issuer may have
acquired in any manner whatsoever and all Bonds so delivered shall be promptly
canceled by the Bond Trustee. No Bonds shall be authenticated in lieu of or in
exchange for any Bonds canceled as provided in this Section 2.3, except as
expressly permitted by this Bond Indenture. All canceled Bonds held by the
Bond Trustee shall be held or disposed of by the Bond Trustee in accordance
with its standard retention or disposal policy as is in effect at the time
unless the Issuer shall direct that they be returned to it; provided that such
direction is timely and the Bonds have not been previously disposed of by the
Bond Trustee in the absence of such direction and in accordance with the
foregoing policy.
No service charge shall be made for any registration of transfer or
exchange of Bonds, but the Registrar may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Bonds.
2.4. Requirements for Transfer of Residual Bonds.
2.4.1. Registration or Exemption under the Securities Act. a. No
transfer of a Residual Bond shall be made unless such transfer is made pursuant
to an effective registration statement under the Securities Act and any
applicable state securities laws or is exempt from the registration
requirements under the Securities Act and such state securities laws. In the
event that a transfer is to be made in reliance upon an exemption from the
Securities Act and such laws, in order to assure compliance therewith, the
Holder desiring to effect such transfer and such Holder's prospective
transferee shall each certify to the Bond Trustee in writing the facts
surrounding the transfer in substantially the forms set forth in Exhibit E (the
"Transferor Certificate") and either Exhibit F (the "Investment Letter") or
Exhibit G (the "Rule 144A Letter"). In the event that such transfer is to be
made within three years from the date of the initial issuance of Bonds pursuant
hereto (other than a transfer as to which the proposed transferee has provided
a Rule 144A Letter), there shall also be delivered to the Bond Trustee an
Opinion of Counsel that such transfer may be made pursuant to an
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<PAGE> 18
exemption from the Securities Act and such state securities laws. The
Issuer shall provide to any Holder of a Residual Bond and any prospective
transferee designated by any such Holder, information regarding the related
Bonds and such other information as shall be necessary to satisfy the
conditions of eligibility set forth in Rule 144A(d)(4) for transfer of any such
Bond without registration thereof under the Securities Act pursuant to the
registration exemption provided by Rule 144A. The Bond Trustee and Kmart shall
cooperate with the Issuer in providing such information, including providing to
the Issuer such information regarding the Bonds and other matters regarding the
Trust Estate as the Issuer shall reasonably request to meet its obligation
under the preceding sentence; provided, however, that the Bond Trustee shall
only be obligated to provide information with respect to (i) amounts paid or
owing to Bondholders, (ii) Defaults known to it, (iii) the number of registered
Bondholders or (iv) the terms of the Bonds and this Bond Indenture, including
restrictions on the transfer of Bonds. Each Holder of a Residual Bond desiring
to effect such transfer shall, and does hereby agree to, indemnify the Bond
Trustee, the Tax Administrator, Kmart, the Issuer, the Owner Participants and
the Owner Trustees against any liability that may result if the transfer is not
so exempt or is not made in accordance with such federal and state laws. Such
indemnification obligation shall survive termination of this Bond Indenture and
payment in full of the Bonds.
b. No transfer of a Residual Bond shall be made unless
the transferee provides the Tax Administrator and the Bond Trustee with (i) an
agreement of the transferee substantially in the form of Exhibit H (a
"Transferee Agreement") hereto and (ii) either (A) an affidavit substantially
in the form of Exhibit BPA to Exhibit H hereto that the proposed transferee is
not a "benefit plan investor" described in or subject to the Plan Asset
Regulations (a "Benefit Plan Affidavit") or (B) a Benefit Plan Opinion.
c. The Bond Trustee shall not register any transfer of a
Residual Bond (including any beneficial interest therein) unless it shall have
received the written consent of the Tax Administrator. The Tax Administrator
shall not give such consent to any proposed transfer to any investor that is a
Disqualified Organization or in any case where such transfer would result in
the Issuer or the Trust Estate being deemed to be an "investment company"
within the meaning of the Investment Company Act of 1940, as amended. As
prerequisites to the Tax Administrator's consent to any other transfer, the
proposed transferee (including an initial purchaser) of a Residual Bond, or any
beneficial interest therein, must provide the Tax Administrator and the Bond
Trustee with (i) the items specified in paragraph (b) above, (ii) (A) if the
transferee is a Non-U.S. Person, an affidavit in substantially the form
attached as Exhibit B-1 to Exhibit H hereto and (B) if the transferee is a U.S.
Person, an affidavit
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in substantially the form attached as Exhibit B-2 to Exhibit H hereto and (iii)
if the proposed transferee is a Non-U.S. Person, a certificate, signed by the
transferor, stating whether the Residual Bond has "tax avoidance potential" as
defined in Treasury Regulations Section 1.860G-3(a)(2) (a "TAPRI
Certificate"); provided, however, that a TAPRI Certificate shall not be
required with respect to the initial issuance by the Issuer. Notwithstanding
the fulfillment of the prerequisites described above, the Tax Administrator may
withhold its consent to a transfer, but only to the extent necessary to avoid a
risk of (i) disqualification of the related REMIC as a REMIC or (ii) the
imposition of a tax upon any REMIC. In addition, the Tax Administrator shall
not give its consent to the transfer of less than an entire interest in a
Residual Bond unless the interest transferred is an undivided interest or the
transferor or the transferee provides the Tax Administrator with an Opinion of
Counsel that the transfer will not jeopardize the REMIC status of the related
REMIC.
d. If a tax or a reporting cost is borne by any REMIC as a
result of the transfer of a Residual Bond, or any beneficial interest therein,
in violation of the restrictions set forth in this Section, the Bond Trustee,
upon notification from the Tax Administrator, may pay such tax or reporting
cost with amounts that otherwise would have been paid to the transferee of such
Residual Bond (or beneficial interest therein). In that event, neither the
transferee nor the transferor shall have any right to seek repayment of such
amounts from the Bond Trustee, the Issuer, any REMIC, the Tax Administrator or
the other Holders.
e. Any attempted or purported transfer of any ownership
interest in a Residual Bond in violation of the provisions of this Section
2.4.1 shall be absolutely null and void and shall vest no rights in the
purported transferee. If any purported transferee shall become a Holder of a
Residual Bond in violation of the provisions of this Section 2.4.1, then the
last preceding Permitted Transferee shall be restored to all rights as Holder
thereof retroactive to the date of registration of Transfer of such Residual
Bond. The Bond Trustee shall be under no liability to any Person for any
registration of transfer of a Residual Bond not permitted by Section 2.4.1 and
this Section 2.4.1 or for making any payments due on such Bond to the Holder
thereof or taking any other action with respect to such Holder under the
provisions of this Bond Indenture. The Bond Trustee shall be entitled but not
obligated to recover from any Holder of a Residual Bond that was in fact not a
Permitted Transferee at the time it became such a Holder or, at such subsequent
time as it became other than a Permitted Transferee, all payments made on such
Residual Bond at and after either such time. Any such payments so recovered by
the Bond Trustee shall be paid and delivered by the Bond Trustee to the current
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Permitted Transferee, if any, or the last preceding Permitted Transferee of
such Bond.
f. The Tax Administrator shall make available, upon receipt
of a written request from the Bond Trustee, all information necessary to
compute any tax imposed under section 860E(e) of the Code as a result of a
transfer of an ownership interest in a Residual Bond to any Person who is not a
Permitted Transferee.
The restrictions on transfers set forth in this Section 2.4.1, to the
extent they relate to REMIC qualification, shall cease to apply with respect to
transfers occurring after delivery to the Bond Trustee of an Opinion of Counsel
to the effect that the elimination of such restrictions will not cause the
Trust Estate, or any portion thereof, to fail to qualify as a REMIC at any time
that the Residual Bonds are outstanding or result in the imposition of any tax
on the Trust Estate, a Holder or another Person. Each Person holding or
acquiring any ownership interest in a Residual Bond hereby consents to any
amendment of this Bond Indenture which is reasonably necessary (a) to ensure
that the record ownership of, or any beneficial interest in, a Residual Bond is
not transferred, directly or indirectly, to a Person that is not a Permitted
Transferee and (b) to provide for a means to compel the transfer of a Residual
Bond which is held by a Person that is not a Permitted Transferee to a Holder
that is a Permitted Transferee.
2.4.2. Payment of Expenses. The preparation and delivery of the
certificates and Opinions of Counsel referred to in this Section 2.4 shall not
be an expense of the Trust Estate, the Bond Trustee, the Owner Trustee or
Kmart.
2.5. Payment of the Bonds. The Issuer shall duly and punctually pay,
or cause to be paid, the principal of, interest on and premium, if any, on the
Bonds in accordance with their respective terms; provided, however, that the
Issuer's obligations with respect to the Series A Bonds and Series AR Bonds
shall be recourse solely to the Pool A Asset Group, its obligations with
respect to the Series B Bonds and Series BR Bonds shall be recourse solely to
the Pool B Asset Group, and its obligations with respect to the Series C Bonds
and Series CR Bonds shall be recourse solely to the Pool C Asset Group. All
payments shall be made without demand therefor or, except for a final payment
in full, presentation of the Bonds, and shall be delivered to the Bond Trustee
at the Corporate Trust Office, in lawful money of the United States. Upon
receipt of any such payment and its conversion into immediately available
funds, the Bond Trustee will promptly remit to the Holders its ratable share,
either by (a) in the case of any Holder holding a Bond having an initial
principal amount equal to or greater than $5,000,000, by wire transfer in the
form of federal or other
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immediately available funds to an account in the United States designated by
such Holder provided that an account number is included in the Register or (b)
by check payable to the order of such Holder sent by first-class mail to such
address as is specified by such Holder. Each payment on the Bonds, whether
made by wire transfer or by check, shall contain a designation that such
payment is from the account of the Issuer. Final payment in full of any Bond
shall be made only against surrender of such Bond to the Bond Trustee at its
Corporate Trust Office.
2.6. Miscellaneous REMIC Provisions.
2.6.1. REMIC Elections. The Issuer shall make elections to treat
each of the Pool A Asset Group, the Pool B Asset Group and the Pool C Asset
Group as a separate REMIC under section 860D of the Code (the "Pool A REMIC",
"Pool B REMIC" and "Pool C REMIC", respectively, and collectively, the
"REMICs"). Any inconsistencies or ambiguities in this Bond Indenture or in the
administration of the trust shall be resolved in a manner that preserves the
validity of such REMIC elections.
2.6.2. Designations of Bonds. The Series A Bonds, the Series B Bonds
and the Series C Bonds are hereby designated as "regular interests" in the Pool
A REMIC, Pool B REMIC and Pool C REMIC, respectively, and the Series AR Bonds,
the Series BR Bonds and the Series CR Bonds are hereby designated as the single
class of "residual interests" in each of the related REMICs, as defined in
section 860G(a) of the Code. Each owner of a Residual Bond hereby agrees to
pay any taxes assessed against it as holder of the "residual interest" in the
related REMIC. The tax year of each of the REMICs shall be the calendar year,
and each REMIC shall use the accrual method of accounting.
2.6.3. Startup. The Startup Day is hereby designated as the "startup
day" for each of the REMICs within the meaning of section 860G(a)(9) of the
Code.
2.6.4. Maturities. The final scheduled Payment Date for any Series
of Bonds is hereby set to coincide with the Payment Dates set forth in the
following table:
<TABLE>
<CAPTION>
Series Final Scheduled Payment Date
--------------- ----------------------------
<S> <C>
Series A Bonds _______________
Series B Bonds _______________
Series C Bonds _______________
Series AR Bonds _______________
Series BR Bonds _______________
Series CR Bonds _______________
</TABLE>
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The Residual Bonds shall remain outstanding, whether or not receiving
current distributions of interest or principal, for the life of the related
REMIC.
2.6.5. Tax Matters Person. The Tax Administrator is hereby
designated as "tax matters person" with respect to the Trust Estate and each of
the REMICs as defined in the REMIC Provisions, and, in connection therewith,
shall hold a percentage interest of 0.01% of each of the Series AR Bonds,
Series BR Bonds and Series CR Bonds.
2.6.6. REMIC Administration. a. Notwithstanding any other
provisions of this Bond Indenture, the Bond Trustee or other Withholding Agent
shall comply with all federal withholding requirements respecting payments to
Holders of interest or original issue discount on the Bonds that the Bond
Trustee reasonably believes are applicable under the Code. The consent of
Holders shall not be required for such withholding. In the event the Bond
Trustee or other Withholding Agent does withhold any amount from interest or
original issue discount payments to any Holder pursuant to federal withholding
requirements, the Bond Trustee shall indicate with any payment to such Holders
the amount withheld. In addition, the Bond Trustee or other Withholding Agent
may (i) withhold an amount equal to any taxes due upon disposition of a
Residual Bond from future distributions made with respect to the Residual Bond
to the transferee (after giving effect to the withholding of taxes imposed on
such transferee), and (ii) pay the withheld amount to the IRS unless
satisfactory written evidence of payment of the taxes due by the transferor has
been provided to the Bond Trustee or such Withholding Agent. Moreover, the
Bond Trustee or other Withholding Agent may (i) hold distributions on a
Residual Bond, without interest, pending determination of amounts to be
withheld, (ii) withhold any other amounts required to be withheld pursuant to
United States federal income tax law, if any, from distributions that otherwise
would be made to such transferee on each Residual Bond that it holds, and (iii)
pay to the IRS all such other amounts withheld.
b. The Tax Administrator shall pay any and all tax-
related expenses (not including taxes) of the Trust Estate and the REMICs,
including but not limited to any professional fees or expenses related to
audits or any administrative or judicial proceedings with respect to any of the
REMICs that involves the IRS or state tax authorities.
c. The Tax Administrator shall prepare any necessary
forms for election as well as all of each REMIC's federal and state tax and
information returns. The Issuer shall sign and the Tax Administrator shall
file such returns on behalf of each REMIC. The expenses of preparing and
filing such returns shall be borne by the Tax Administrator.
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d. The Tax Administrator shall perform all reporting and
other tax-compliance duties that are the responsibility of each REMIC under the
REMIC Provisions or state or local tax law. However, notwithstanding the
foregoing, the Bond Trustee shall perform all reporting on Forms 1099 and
otherwise with respect to interest and discount (if any) paid or accrued to the
Holders of the Offered Bonds. Among its other duties, if required by the REMIC
Provisions, the Tax Administrator, acting as agent of each REMIC, shall provide
(i) to the Treasury or other governmental authority such information as is
necessary for the application of any tax relating to the transfer of a Residual
Bond to any Disqualified Organization and (ii) to the Bond Trustee such
information as is necessary for the Bond Trustee to discharge its obligations
under the REMIC Provisions to report tax information to the Holders of the
Offered Bonds.
e. To the extent that the Tax Administrator is
responsible under this Section for reporting, filing, or performing other
administrative duties and such reporting, filing, or other duties are the legal
responsibility of the Bond Trustee or the Issuer, the Tax Administrator (i)
shall prepare such reports or filings for signature by the Bond Trustee or the
Issuer and (ii) shall act as the agent of the Bond Trustee or the Issuer in the
performance of such other duties to the maximum extent permitted by law and by
the Bond Trustee or the Issuer, as the case may be. The Issuer, the Bond
Trustee, the Tax Administrator and the Holders of Residual Bonds shall carry
out their respective responsibilities under this Section 2.6.6 in a timely
fashion.
f. The Issuer, the Tax Administrator, the Bond Trustee
(to the extent it has been instructed by the Issuer or the Tax Administrator)
and the Holders of Residual Bonds shall take any action or cause any REMIC to
take any action necessary to create or maintain the status of such REMIC as a
REMIC under the REMIC Provisions and shall assist each other as necessary to
create or to maintain such status.
g. The Issuer, the Tax Administrator, the Bond Trustee
(to the extent it has been instructed by the Issuer or the Tax Administrator)
and the Holders of Residual Bonds shall not take any action or fail to take any
action, or cause any REMIC to take any action or fail to take any action that,
if taken or not taken, as appropriate, could endanger the status of any such
REMIC as a REMIC unless the Bond Trustee and the Tax Administrator have
received an Opinion of Counsel (at the expense of the party seeking to take or
to fail to take such action) to the effect that the contemplated action or
failure to act will not endanger such status.
h. The Holders of the Residual Bonds shall be required
by the terms of each Residual Bond to pay, and shall pay
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when due, their pro rata share of any and all taxes imposed on the related
REMICs or on the Trust Estate (in the proportion that the assets of the related
REMICs bear to the total assets of the Trust Estate) by federal or state
governmental authorities (other than the taxes paid by another party pursuant
to Article XXII hereof).
i. If the Tax Administrator is unable for any reason to
fulfill its duties as Tax Matters Person, the holder of the largest Percentage
Interest of the Residual Bonds (as set out on the faces of such Bonds) relating
to a particular REMIC shall become the successor Tax Matters Person of such
REMIC.
j. Neither the Issuer nor the Bond Trustee shall enter into
any arrangement by which the Bond Trustee will receive a fee or other
compensation for services rendered pursuant to this Bond Indenture, which fee
or other compensation is paid from the Trust Estate, other than as expressly
contemplated by this Bond Indenture.
2.7. Mutilated, Destroyed, Lost and Stolen Bonds. Upon receipt by
the Issuer and the Bond Trustee of evidence satisfactory to them of the theft,
loss, destruction or mutilation of any Definitive Bond and (in the case of any
such theft, loss or destruction) of indemnity satisfactory to them, and upon
surrender and cancellation of such Definitive Bond if mutilated, the Issuer
shall execute, and the Bond Trustee shall thereupon authenticate and deliver, a
new Bond of like tenor and of the same Series with the same interest rate and
Stated Maturity in lieu of such stolen, lost, destroyed or mutilated Bond;
provided that if any such Bond shall have matured or shall be about to mature,
in lieu of issuing a substitute Definitive Bond the Bond Trustee may pay the
same without surrender thereof. Any indemnity Bond shall name as obligee the
Bond Trustee.
ARTICLE III
3. Redemption of Bonds; Sinking Fund and Payment of Bonds at
Stated Maturity.
3.1. Establishment of Bond Accounts and Reserve Funds. On or prior
to the Startup Day, the Bond Trustee shall cause to be established, and the
Bond Trustee shall maintain, the Bond Accounts and the Reserve Funds as trust
accounts held by the corporate trust department of the Bond Trustee, in the
name of the Bond Trustee for the benefit of Bond Owners as described herein.
The Pool A Bond Account and the Pool A Reserve Fund shall be established for
the sole benefit of the Bond Owners of the Series A Bonds and Series AR Bonds,
the Pool B Bond Account and the Pool B Reserve Fund shall be established for
the sole benefit of the Bond Owners of the Series B Bonds and Series BR
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Bonds and the Pool C Bond Account and the Pool C Reserve Fund shall be
established for the sole benefit of the Bond Owners of the Series C Bonds and
Series CR Bonds. Amounts held in a Bond Account or a Reserve Fund must be held
in cash or in Permitted Investments; provided, however, that a Reserve Fund may
hold debt obligations of Kmart or interests therein.
3.1.1. Deposits into the Bond Account; Certain Withdrawals. (a) Upon
receipt, the Bond Trustee shall promptly deposit into (i) the Pool A Bond
Account all amounts received with respect to the Series A Notes, (ii) the Pool
B Bond Account all amounts received with respect to the Series B Notes and
(iii) the Pool C Bond Account all amounts received with respect to the Series C
Notes, whether received as rental payments or otherwise. The Bond Trustee
shall not be held liable for the non-payment by or on behalf of the Note
Trustee of monies owing under the Note Indentures or the Notes or monies on any
Notes. If such amounts are received after such Payment Date, such monies
shall be promptly withdrawn from the Bond Accounts and distributed by the Bond
Trustee on the date of receipt, to the extent available therefor pursuant to
the terms hereof, to pay in full the principal of, premium, if any, on and
interest then due on the related Series of Bonds as set forth in such Bonds
(including any Make-Whole Premium thereon) and, in the case such amounts shall
be insufficient to pay in full the whole amount so due and unpaid, then all
such amounts shall be so distributed as payment of interest and principal, pro
rata among Bonds of the related Series, without any preference or priority of
one such Bond over another, according to the aggregate amount due for
principal, premium, if any, and interest (including any Make-Whole Premium
thereon) at the date of payment.
Notwithstanding any other provision herein, if with respect to any
Payment Date, the amount received by the Bond Trustee with respect to a Bond
Account is in excess of the amount currently due or overdue on the related
Series of Notes pursuant to the Note Indentures, the Bond Trustee shall
distribute such excess amount from such Bond Account to the appropriate Note
Trustee for distribution pursuant to the terms of the related Note Indenture on
such Payment Date or promptly after the receipt of such amounts if such amounts
are received after such Payment Date; provided, however, that in no event shall
any amount received by the Bond Trustee with respect to the Notes of a
particular Series be applied to make payments on, or otherwise be applied for
the benefit of, Bonds that are not of a corresponding Series. The Bond Trustee
shall not apply any such excess amount in any other manner, including to
payment of amounts due on the Bonds on future Payment Dates.
3.2. Interest and Sinking Fund Payments.
3.2.1. Distribution. (a) On each Payment Date, the Bond Trustee shall
distribute from the related Bond Account to the applicable Holders (i)
interest, calculated as set forth in the Bonds and (ii) the principal amount of
Bonds required to be paid by operation of the Sinking Fund on each such Payment
Date specified in Schedule I without, except in the case of the
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final payment on or before the Stated Maturity of the Bonds, presentment or
surrender of the Bonds.
On any Payment Date on which payments of interest and
principal on any Bond do not constitute payment in full of such Bond,
such payments shall be made by check mailed to the Holder of such Bond to such
address as such Holder shall specify or if such Holder holds Bonds having an
aggregate initial principal amount of at least $5,000,000 so specifies in
written notice to the Bond Trustee received no fewer than five days prior to
such Payment Date, and provided an account number is included in the Register,
payments will be made by wire transfer in immediately available funds to such
account. Final payment on or before the Stated Maturity of any Bond shall be
made only against surrender of such Bond at the Corporate Trust Office.
(b) The obligations of the Owner Trustee to make, and of
the Bond Trustee and the Note Trustees to apply, payments of principal,
interest or premium on the Notes shall be deemed satisfied and discharged to
the extent of monies received by the Bond Trustee as Rent or otherwise pursuant
to this Bond Indenture or the Assignments (other than Excepted Payments) and
to the extent such monies would be available to make payments on the Notes if
such monies were applied pursuant to Article 4 of the Note Indenture (and
regardless of whether such monies are in fact so applied).
3.2.2. Reductions for Redemption. In the event that there shall have
been any partial redemption of the Bonds (other than by operation of the
Sinking Fund), the amount of each Sinking Fund payment with respect to such
Bonds subsequent to such redemption shall be reduced proportionately, and set
forth in a new schedule of Sinking Fund payments on the Notes provided by the
Note Trustee to the Bond Trustee.
3.3. Redemption of Bonds Through Operation of Sinking Fund. Payments
of principal on the Bonds of each Series pursuant to the operation of the
Sinking Fund shall be paid on each of the Bonds of such Series on a pro rata
basis.
3.4. [Reserved.]
3.5. No Redemption or Prepayment Prior to Maturity. Except as
provided in Sections 3.2 and 3.6 hereof, the Bonds may not be redeemed or
prepaid prior to their respective Stated Maturity dates.
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3.6. Redemption Other Than Through Operation of the Sinking Fund.
The outstanding Bonds shall be redeemed in whole or in part:
(a) at the Redemption Price, without premium, in the event of
a redemption of the Notes or any portion of the Notes pursuant to Section
6.1(b)(i) or 6.1(b)(iii) of the Note Indentures or in the event that any of the
Notes are redeemed pursuant to Section 3.1 of the Note Indentures; and
(b) at the Redemption Price, which shall include the
Make-Whole Premium, in the event of a redemption of the Notes or any portion of
the Notes pursuant to Section 6.1(b)(ii) of the Note Indentures.
In the case of any partial redemption pursuant to this Section 3.6, each
outstanding Bond shall be redeemed on a pro rata basis, without priority of one
over the other, in the proportion that the aggregate unpaid principal amount of
the Bond held by the Holder bears to the aggregate unpaid principal amount of
all outstanding Bonds of all Series.
3.7. Holding in Trust. Upon receipt thereof, the Bond Trustee shall
hold in trust for the benefit of the Holders of the related Series all amounts
received, if any, pursuant to the Master Indemnification Agreement with respect
to the Series A Notes, Series B Notes or Series C Notes, and distributed in
accordance with Section 3.1.1 hereof.
3.8. Partial Redemption References. For all purposes of this Bond
Indenture, unless the context otherwise requires, all provisions relating to
the redemption of Bonds shall relate, in the case of any Bond redeemed or to be
redeemed only in part, to the portion of the principal of such Bond which has
been or is to be redeemed.
3.9. Notice of Redemption to Holders.
3.9.1. Specifications of Notice. Notice of redemption other than
through the operation of the Sinking Fund shall be given by first- class mail,
postage prepaid, mailed not less than 30 nor more than 45 days prior to the
Redemption Date (provided, however, that the Bond Trustee shall not be required
to give such notice until it shall have had five days' actual notice of a
partial redemption of the Notes), to each Holder of Bonds to be redeemed, at
its address appearing in the Register. All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
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(c) if less than all outstanding Bonds are to be redeemed,
the identification (and, in the case of partial redemption, the principal
amount) of the particular Bonds to be redeemed;
(d) whether a Make-Whole Premium is to be paid in
connection with such redemption, and, if so, the amount thereof; and
(e) that on the Redemption Date the Redemption Price will
become due and payable upon each such Bond, and that interest thereon shall
cease to accrue on and after said date.
3.10. Payment on Redemption. Regardless of whether notice of
redemption shall have been given as aforesaid, the Bonds to be redeemed shall,
on the Redemption Date, become due and payable at the Redemption Price, and
from and after such date (unless there shall be a default in the payment of the
Redemption Price) such Bonds or redeemed portions, as appropriate, shall cease
to bear interest; provided that installments of interest with respect to Bonds
whose Stated Maturity is on or after the Redemption Date shall be payable to
the Holders of such Bonds on the relevant Redemption Date according to their
terms without diminution with respect to such Redemption.
If any Bond called for redemption shall not be so paid upon such
Redemption Date, the principal and premium (if any) shall, until paid, bear
interest from the Redemption Date at the rate provided in such Bond.
3.11. Termination of Obligations. The respective obligations and
responsibilities under this Bond Indenture of the Issuer, the Tax Administrator
and the Bond Trustee (other than the obligations of the Bond Trustee to make
payments to Holders as hereafter set forth) shall terminate upon payment to the
Holders of all amounts held by or on behalf of the Bond Trustee and required
hereunder to be so paid.
3.12. Additional Redemption Requirements.
3.12.1. Termination of REMIC. In the event of a complete redemption
of all outstanding Offered Bonds of a particular Series, the related REMIC
shall be terminated in accordance with the following additional requirements,
unless the Bond Trustee receives (a) a Special Tax Opinion and (b) a Special
Tax Consent from each of the Holders of the Residual Bonds (unless the Special
Tax Opinion specially provides that no REMIC-level tax will result from such
redemption):
(i) within 90 days prior to the date of such
redemption, the Bond Trustee on behalf of the related REMIC
shall adopt a plan of complete liquidation
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meeting the requirements of a qualified liquidation under the REMIC
Provisions (which plan may be adopted by the Bond Trustee's attachment
of a statement specifying the first day of the 90-day liquidation
period to the REMIC's final federal income tax return);
(ii) upon making final payment on the Offered Bonds of a
particular Series (including the deposit of any unclaimed
funds otherwise payable to the holders of the Offered Bonds in
a separate fiduciary account), the Bond Trustee shall
distribute or credit to the Holders of the related Residual
Bonds all cash on hand and any other assets of the related
Asset Group after such final payment (other than cash retained
to meet claims), and the related REMIC shall terminate at that
time; and
(iii) in no event shall the final payment on the related
Bonds be made after the 90th day from the date on which the
plan of complete liquidation is adopted.
3.12.2. Authorization by Holders. By their acceptance of the
Residual Bonds, the Holders thereof hereby (a) authorize such action as may be
necessary to adopt a plan of complete liquidation of the related REMIC and (b)
agree to take such action as may be necessary to adopt a plan of complete
liquidation of the related REMIC upon the written request of the Bond Trustee,
which authorization shall be binding upon all successor Holders of Residual
Bonds.
3.13. Reserve Funds; Final Disbursements.
3.13.1. Reserve Fund Amounts. Any amounts held in or received from
any Bond Owner of a Residual Bond with respect to a Reserve Fund ("Reserve Fund
Amounts") shall be applied by the Bond Trustee to pay the expenses of the
related REMIC, including the portion of the Bond Trustee's or Tax
Administrator's fees allocable to such REMIC. Any Reserve Fund Amounts
remaining after the payment of such expenses shall be held in the Reserve Fund
for the payment of future expenses. In the event that any Reserve Fund Amounts
remain in a Reserve Fund after the date on which the related Offered Bonds have
been paid in full or otherwise retired, such Amounts shall be distributed to
the Owners of the related Residual Bonds. Reserve Fund Amounts may be used
only for the expenses of the related REMIC, which expenses do not include sums
due with respect to the Offered Bonds. The portion of the Bond Trustee's fees
or Tax Administrator's fees that is allocable to a REMIC is the total amount of
such fees then due divided by the number of REMICs with respect to which
Offered Bonds remain outstanding.
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3.13.2. Amounts Related to Residual Bonds. Any amounts received by
the Bond Trustee from the Bond Owner of a Residual Bond for the payment of the
expenses of the related REMIC shall be deposited in the related Reserve Fund.
3.13.3. Amounts Remaining. Any amounts remaining in an Asset Group
after the payment in full of the related Series of Offered Bonds, the payment
of expenses related to such Asset Group, and the distribution of Reserve Fund
Amounts as set forth in Section 3.13.1. hereof shall be distributed to the
Holders of the Residual Bonds relating to such Asset Group.
ARTICLE IV
4. Representations and Warranties. The Issuer represents and
warrants that (a) it has full power, authority and legal right to execute and
deliver this Bond Indenture and the Note Assignment and to grant a first lien
upon the Trust Estate, (b) it is the holder of the Notes and the beneficiary
under the Note Indentures, free and clear of all liens and encumbrances (other
than those created by the Note Assignment), (c) this Bond Indenture constitutes
a valid first lien upon the Trust Estate, (d) except pursuant to the pledge of
the Notes to the Bond Trustee and as provided in the Note Assignment, none of
the Notes has been assigned or encumbered by the Issuer and (e) all things have
been done which are necessary to make the Bonds, when executed by the Issuer
and authenticated and delivered by the Bond Trustee hereunder and duly issued
by the Issuer, the valid obligations of the Issuer, and to constitute this Bond
Indenture a security agreement and contract for the security of the Bonds, in
accordance with the terms of the Bonds and this Bond Indenture.
ARTICLE V
5. Affirmative Covenants. Until this Bond Indenture and the lien
created hereby shall terminate in accordance with Article XXV hereof, the
Issuer covenants as follows:
(a) Recordation, Filing, etc. At all times the Issuer
shall cause this Bond Indenture and each amendment or modification hereof or
supplement hereto and the Assignment (and such financing statements covering
the Trust Estate, and continuation statements in respect thereof, under the
Uniform Commercial Code as in effect in Alaska, Arizona, California, Florida,
Georgia, Illinois, New York, Ohio, Oklahoma, Rhode Island, Texas, Virginia and
West Virginia as may be necessary or appropriate) to be recorded, registered
and filed and kept recorded, registered and filed in such manner and in such
places as are appropriate, and comply with all applicable statutes and
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regulations, in order to establish, preserve and protect the lien of this Bond
Indenture as a first lien on the Trust Estate and the rights of the Holders
hereunder. The Bond Trustee shall pay all taxes, fees and other charges
incurred in connection with such recording, registration, filing and compliance
which taxes, fees and other charges shall be Trustee Expenses under, and as
defined in, the Leases.
(b) Annual Officer's Certificate. Within 120 days after
the end of each of the Issuer's fiscal years, the Issuer shall furnish the Bond
Trustee with an Officer's Certificate, stating that to the best of the signer's
knowledge after making due inquiry, the Issuer is not in default in the
performance or observance of any of the terms of this Bond Indenture, or if the
Issuer shall be in default to his or her knowledge, specifying all such
defaults, and the nature thereof, and the steps being taken to remedy the same.
(c) Corporate Existence. The Issuer shall preserve and
keep in full force and effect its existence, rights and franchises and comply
in all material respects with all laws applicable to it; provided that the
Issuer may abandon or terminate any right or franchise in any State other than
that of its formation if such abandonment or termination will not adversely
affect the interests of the Holders in any material respect.
ARTICLE VI
6. Negative Covenants. Without the prior written consent of a
Majority in Interest, the Issuer shall not:
(a) create, incur, assume or suffer to exist any
indebtedness whatsoever, direct, contingent or otherwise, except (i) the
indebtedness contemplated by this Bond Indenture and (ii) unsecured
indebtedness maturing subsequent to the maturity of the Bonds, all of which
shall be subordinate in right of payment to the prior payment in full of all
indebtedness secured by this Bond Indenture;
(b) directly or indirectly create or permit to be created
any mortgage, charge, lien or encumbrance on, or attachment or pledge of, or
conditional sale or other title-retention agreement with respect to, the Trust
Estate or any part thereof, its interest or that of the Bond Trustee for the
benefit of the Holders therein, or any sums payable pursuant to the Notes,
except (i) this Bond Indenture, (ii) the Assignments, (iii) the Note Assignment
and (iv) liens arising out of or created by any statute, the discharge of which
cannot under the terms of such statute at the particular time be effected by
the Issuer; provided, however, that any such statutory liens will
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promptly be discharged as and when such discharge is possible or permissible;
(c) purchase or agree to purchase or lease any real or
personal property;
(d) engage in any business or other undertaking other
than the business of acquiring, owning, mortgaging, and conveying the Trust
Estate and financing the cost thereof, all as contemplated by the original
certificate of incorporation of the Issuer; or
(e) make any advance or loan to, or invest in or purchase
any security of, or assume, guarantee, purchase or otherwise become directly or
indirectly liable upon the obligation of, any person, partnership, corporation,
association or other entity, or make any commitment so to do.
ARTICLE VII
7. Events of Default. If any one or more of the following events
(individually, an "Event of Default") shall occur:
(a) non-payment (i) of (A) any payment of interest
accrued on any of the Bonds or (B) any Sinking Fund payment on any of the
Bonds, in either case within five days after notice to the Issuer and to the
Owner Trustee that the same is due; or (ii) of other sums that the Issuer is
obligated to pay hereunder within 15 days after notice to the Issuer that the
same are due;
(b) default by the Issuer in the due observance or
performance of any term, covenant or condition on its part to be performed
under this Bond Indenture (other than a default under subsection (a) above)
which would have a material adverse effect on the lien of this Bond Indenture
or the repayment of the Bonds, continued unremedied for a period of 30 days
after notice thereof to the Issuer from the Bond Trustee or a Majority in
Interest, except that if any such default cannot with due diligence be cured
within a period of 30 days, such default shall not be deemed to continue if the
Issuer proceeds promptly and with all due diligence to cure the default and
diligently completes the curing thereof;
(c) any of the representations or warranties made by the
Issuer is found to be untrue in any material respect which would have a
material adverse effect on the lien of this Bond Indenture or the repayment of
the Bonds;
(d) a Note Indenture Event of Default shall have occurred
and be continuing;
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(e) the Issuer shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now
or hereafter in effect, or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial part
of its property, or it shall consent to any such relief or to the appointment
of or taking or possession by any such official in any involuntary case or
other proceeding commenced against it, or it shall make a general assignment
for the benefit of creditors; or
(f) a decree or order for relief shall be entered by a court
having jurisdiction over the Issuer in any involuntary case under any
bankruptcy, insolvency or other similar law now or hereafter in effect, or
appointing a trustee, receiver, liquidator, custodian or other similar official
of the Issuer, its interest in the Note Indentures or any substantial part of
its property, or ordering the winding-up or liquidation of its affairs, and
such decree or order shall remain undismissed or unstayed for a period of 90
consecutive days;
then (except in the case of an Event of Default set forth in clause (d) above
of less than all of the Note Indentures, which may not be a basis to accelerate
the Bonds) in any such event, the Bond Trustee may, or upon written direction
of a Majority in Interest of the affected Holders, the Bond Trustee shall, upon
notice to the Issuer (with a copy to Kmart and the Owner Trustee) accelerate
the maturity of the affected Bonds; provided, however, that in the case of an
Event of Default set forth in clause (e) or clause (f) above, the maturity of
the Bonds shall automatically be accelerated without notice from any party to
another. In such case, the unpaid principal amount of the accelerated Bonds,
with accrued interest thereon, shall become immediately due and payable;
provided, however, that a Majority in Interest may rescind such acceleration of
the Bonds if such Event of Default is cured. For purposes of this Article VII,
the determination of an Event of Default shall be made separately with respect
to each Series of Bonds. The occurrence of an Event of Default with respect to
a Series of Bonds by itself shall not constitute or trigger an Event of Default
with respect to any other Series of Bonds, although the same circumstances may
give rise simultaneously to Events of Default for more than one Series of
Bonds.
The Bond Trustee must notify the Holders and Kmart within 45 days after
the occurrence of any Default known to it, unless it has determined (except in
the case of Defaults in payment of the Bonds) that withholding such notice is in
the best interests of the Holders as provided in Section 315(b) of the Trust
Indenture Act.
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ARTICLE VIII
8. Remedies; Rescission.
8.1. Remedies. Subject to Sections 8.3 and 8.4 hereof, if an Event of
Default shall have occurred and be continuing, the Bond Trustee may, and upon
the direction of the Majority in Interest, shall proceed by suit or suits at
law or in equity and exercise any and all of the rights, powers and remedies
provided in any applicable state Uniform Commercial Code, or by any other
appropriate remedy to protect and enforce its rights and those of each Holder
hereunder, whether for the specific performance of any covenant or agreement
contained herein, or for an injunction against the violation of any of the
terms hereof, or in aid of the exercise of any right, power or remedy available
to any of them, or to enforce the payment of the Bonds, or to foreclose the
lien of this Bond Indenture as against the portion of the Trust Estate
consisting of the Asset Group that relates to the affected Series of Bonds and
to have any part of such Asset Group sold, in any manner permitted by law,
under the judgment or decree of a court or courts of competent jurisdiction, or
otherwise. All rights of action under this Bond Indenture or in respect of the
Bonds may, if permitted by applicable law, be enforced by the Bond Trustee
without the possession of any of the Bonds and without the production of the
Bonds or this Bond Indenture at any trial or other proceeding relative thereto.
All costs and expenses (including, without limitation, reasonable attorneys'
fees) incurred by the Bond Trustee in connection with any such suit or
proceeding shall constitute additional indebtedness secured by this Bond
Indenture and shall be paid by the Issuer to the Bond Trustee upon demand.
8.2. Power of Sale. Subject to Sections 8.3 and 8.4 hereof, if an Event of
Default shall have occurred and be continuing, the Bond Trustee may, and upon
the direction of the Majority in Interest, shall sell, assign, transfer and
deliver the whole or, from time to time, any part of the Asset Group that
relates to the affected Series of Bonds, or any interest in any part thereof,
at any private sale or by public auction, with or without demand, advertisement
or notice of the time or place of sale or adjournment thereof or otherwise, for
cash, on credit or for other property, for immediate or future delivery, and
for such price or prices and on such terms as the Bond Trustee in its sole
discretion may determine (subject to the rights of the Holders set forth in
Article XIX), or as may be required by applicable law. To the extent that
prior notice must be given as to any such sale, the Issuer agrees that ten
days' prior notice shall be deemed reasonable.
8.3. Enforcement of Remedies. Notwithstanding any provision herein
to the contrary, if an Event of Default arises solely by reason of one or more
events or circumstances that constitute a Note Indenture Event of Default under
one or more of the Note Indentures, except in the case of a default specified
in Section 8.1(b) of each Note Indenture by reason of a
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corresponding Lease Event of Default under and as described in Section 21(v) of
each Lease, neither the Bond Trustee nor a Majority in Interest shall be
entitled to accelerate the maturity of any of the Bonds and the Bond Trustee
and Holders shall only be entitled to take action permitted under Sections 8.1,
8.2 and 14 hereof with respect to the portion of the Trust Estate relating to
such Note Indenture or Note Indentures in default and the Notes issued
therefrom.
8.4. Rescission. At any time after acceleration of all of the Bonds
pursuant to Article VII hereof and before any sale of the Trust Estate, or any
part thereof, shall have been made as provided in this Article VIII, a Majority
in Interest may, in their sole and absolute discretion, by notice delivered to
the Issuer and the Bond Trustee, rescind and annul such declaration and its
consequences if (a) there shall have been paid to or deposited with the Bond
Trustee a sum sufficient to pay (i) all overdue installments of interest on all
Bonds, (ii) the principal of and premium, if any, on any Bonds which have
become due otherwise than by reason of such acceleration, and interest thereon
at the effective rates provided in the Bonds for late payments of principal or
premium and (iii) to the extent that payment of such interest is lawful,
interest upon overdue installments of interest at the rate specified in the
Bonds; and (b) all Events of Default, other than the non- payment of the
principal of Notes which have become due solely by such acceleration, have been
cured or waived as provided herein. No such rescission shall affect any
subsequent Event of Default or impair any right consequent thereon.
ARTICLE IX
9. Authorization to Execute Instruments, etc. The Issuer
irrevocably appoints the Bond Trustee as its true and lawful attorney, which
appointment is coupled with an interest and is irrevocable, in the Issuer's
name and stead and on its behalf, for the purpose of (a) executing on behalf of
the Issuer and filing any and all financing and continuation statements,
assignments or other notices and any necessary amendments to all financing
statements in respect of the Trust Estate as further security for the Bonds,
naming the Bond Trustee as the secured party and (b) if an Event of Default
shall have occurred and be continuing, effectuating any sale, assignment,
transfer or delivery of the Trust Estate or any part thereof or any interest
therein for the enforcement of this Bond Indenture whether pursuant to
foreclosure, power of sale or otherwise pursuant to Article VIII hereof.
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ARTICLE X
10. Title Upon Sale; Receipt of a Sufficient Discharge to
Purchaser. Upon the sale of the Trust Estate or any part thereof or any
interest therein, whether pursuant to foreclosure, power of sale or otherwise,
the purchaser shall acquire good title thereto, free of the lien of this Bond
Indenture and free of all rights of redemption, whether statutory, equitable or
otherwise, in the Issuer to the extent permitted by applicable law. The
receipt of the officer making the sale under judicial proceedings or of the
Bond Trustee shall be sufficient discharge to the purchaser for the purchase
money, and such purchaser shall not be obligated to see to the application
thereof.
ARTICLE XI
[RESERVED]
ARTICLE XII
12. Sale a Bar Against the Issuer. The sale of the Trust Estate
or any part thereof or any interest therein, whether pursuant to foreclosure,
power of sale or otherwise under this Bond Indenture, shall forever bar any
claim with respect thereto by the Issuer.
ARTICLE XIII
13. Waiver of Appraisement, Valuation, etc. The Issuer hereby
waives, to the full extent it may lawfully do so, the benefit of all
appraisement, valuation, stay, moratorium, statute of limitations, exemption
from execution, extension and redemption laws now or hereafter in force and all
rights of marshalling in the event of the sale of the Trust Estate or any part
thereof or any interest therein. The Issuer also hereby waives all errors,
defects and imperfections in any proceeding instituted by the Bond Trustee or
any Holder under this Bond Indenture.
ARTICLE XIV
14. Appointment of Receiver. Subject to Sections 8.3 and 8.4
hereof, if an Event of Default shall have occurred and be continuing for a
period of 10 days, the Bond Trustee and each Holder shall, as a matter of
right, be entitled to the appointment of a receiver or receivers of the Trust
Estate or any part thereof (provided, however, that with respect to an Event of
Default set forth in Section 7(d) hereof, such right may be
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exercised only with respect to the portion of the Trust Estate relating to any
Note Indenture under which an underlying Note Indenture Event of Default has
occurred), whether such receivership is incidental to a proposed sale thereof
or otherwise, and the Issuer hereby consents to the appointment of such a
receiver or receivers and will not oppose any such appointment.
ARTICLE XV
[RESERVED]
ARTICLE XVI
16. Supplemental Indentures.
16.1. Supplemental Indentures without Consent of Bondholders.
Without the consent of any of the Bondholders, each of the Issuer and the Bond
Trustee shall enter into one or more Supplemental Indentures, in form
satisfactory to the Bond Trustee, for the following purposes, provided such
Supplemental Indentures are not inconsistent with the rights of Kmart under any
Lease:
(a) subject to the provisions of the Issuer Documents, to
evidence the succession of another corporation to the rights, obligations and
interests of Kmart or to evidence the succession of another corporation to the
rights, obligations and interests of the Issuer, and the assumption by any such
successor of the covenants of the Issuer contained herein and in the Bonds;
(b) to convey, transfer and assign to the Bond Trustee, as
the case may be, and to subject additional property to the lien of this Bond
Indenture, with the same force and effect as though included in the Granting
Clause hereof, and to correct or amplify the description of any property at any
time subject to the lien of this Bond Indenture or to assure, convey and
confirm unto the Bond Trustee, as the case may be, any property subject or
required to be subject to the lien of this Bond Indenture;
(c) to modify, eliminate or add to the provisions of this
Bond Indenture to such extent as shall be necessary to qualify this Bond
Indenture (including any Supplemental Indenture) under the Trust Indenture Act,
or under any similar Federal statute hereafter enacted;
(d) to cure any ambiguity or to correct any provision herein
which may be defective or inconsistent with any other provision herein;
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(e) to evidence the succession of a new Bond Trustee
hereunder or to add a co-trustee or separate trustee and to make provisions as
to the rights and duties of any such additional trustee and as to the
appointment and dismissal of any such additional trustee;
(f) to make any other amendments or provisions with respect
to matters or questions arising under this Bond Indenture which shall not be
inconsistent with the provisions of this Bond Indenture; provided that such
amendment or provision shall not adversely affect in any material respect the
interest of the Bondholders; or
(g) to make such other amendments or provisions as are
necessary to protect the REMIC status of the REMICs as described in this Bond
Indenture.
16.2. Supplemental Indentures with Consent of Bondholders. With the
consent of a Majority in Interest, the Issuer may, and the Bond Trustee,
subject to Section 16.3 hereof, shall, enter into Supplemental Indentures for
the purpose of adding any provisions to or changing in any manner the rights
and obligations of the Bondholders and of the Issuer under this Bond Indenture;
provided, however, that no such Supplemental Indenture shall (a) be
inconsistent with the rights of Kmart under any Lease or (b) without the
consent of each Holder of an outstanding Bond affected thereby:
(i) change the Stated Maturity of the principal of, or any
installment of interest, or the dates or circumstances of payment of
premium, if any, on any Bond, or reduce the principal amount thereof
or the interest thereon or any amount payable upon the redemption
thereof, or change the circumstances for redemption or change the
place of payment where, or the coin or currency in which, any Bond or
the premium, if any, or the interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment of
principal or interest on or after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date subject,
however, to Section 3.4 hereof) or such payment of premium, if any, on
or after the date such premium becomes due and payable;
(ii) permit the creation of any lien prior to or pari passu
with the lien of this Bond Indenture with respect to any part of the
Trust Estate, or terminate the lien of this Bond Indenture on any part
of the Trust Estate or deprive any Bondholder of the security afforded
by the lien of this Bond Indenture;
(iii) reduce the amounts payable under the Notes assigned to
the Bond Trustee or change the time for the
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payment thereof so that such payments are less than the amounts
necessary to pay when due the principal of, premium, if any, and
interest on the outstanding Bonds;
(iv) reduce the percentage in principal amount of the outstanding
Bonds of all Series, the consent of whose holders is required for any
such Supplemental Indenture, or the consent of whose holders is
required for any waiver (of compliance with certain provisions of this
Bond Indenture or of certain defaults hereunder and their
consequences) provided for in this Bond Indenture; or
(v) modify any of the provisions of this Section, except to
provide that certain other provisions of this Bond Indenture cannot be
modified or waived without the consent of each Bondholder affected
thereby.
Upon receipt by the Bond Trustee of an Officer's Certificate of the
Issuer and such other documentation as the Bond Trustee may reasonably require
and upon the provision to the Bond Trustee of evidence of the act of such
Bondholders, the Bond Trustee shall join in the execution of such Supplemental
Indenture or other instrument, as the case may be, subject to the provisions of
Section 16.3 hereof.
It shall not be necessary for any act of Bondholders under this
Section to approve the particular form of any proposed Supplemental Indenture,
but it shall be sufficient if such act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Bond Trustee of any
Supplemental Indenture pursuant to the provisions of this Section, the Bond
Trustee shall transmit a written notice, setting forth in general terms the
substance of such Supplemental Indenture, to all Bondholders, as the names and
addresses of such Bondholders appear on the Bond Register. Any failure of the
Bond Trustee to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such Supplemental Indenture.
16.3. Execution of Supplemental Indentures. In executing, or
accepting the additional trusts created by, any Supplemental Indenture
permitted by this Article or the modifications thereby of the trusts created by
this Bond Indenture, the Bond Trustee shall be entitled to receive, and shall
be fully protected in relying upon, an Opinion of Counsel stating that the
execution of such Supplemental Indenture is authorized or permitted by this
Bond Indenture.
16.4. Effect of Supplemental Indentures. Upon the execution of any
Supplemental Indenture permitted under this Article, this Bond Indenture shall
be modified in accordance therewith, and such Supplemental Indenture shall form
a part of
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this Bond Indenture for all purposes; and every Holder of Bonds theretofore or
thereafter authenticated and delivered hereunder shall be bound to this Bond
Indenture as so supplemented.
ARTICLE XVII
17. Remedies Cumulative. Each legal, equitable or contractual
right, power or remedy of the Bond Trustee and Holders now or hereafter
provided herein or by statute or otherwise shall be cumulative and concurrent
and shall be in addition to every other right, power and remedy, and the
exercise or beginning of the exercise by the Bond Trustee or any Holder of any
one or more of such rights, powers and remedies shall not preclude the
simultaneous or later exercise of any or all such other rights, powers and
remedies.
ARTICLE XVIII
18. No Waiver. No failure by the Bond Trustee or any of the
Holders to insist upon the strict performance of any term hereof or to exercise
any right, power or remedy consequent upon a breach hereof shall constitute a
waiver of any such term or of any such breach. No acceptance of the payment of
any sums due on the Bonds during the continuance of any Default shall
constitute a waiver thereof. No waiver of any breach shall affect or alter
this Bond Indenture which shall continue in full force and effect with respect
to any other then-existing or subsequent breach.
ARTICLE XIX
19. Direction of Action by Holders.
(a) A Majority in Interest shall have the right by an
instrument or instruments in writing delivered to the Bond Trustee to direct
the time, method and place of conducting any proceeding for any remedy
available to the Bond Trustee hereunder; provided that:
(i) such direction shall not be in conflict with any rule of law
or with the rights of the Issuer or the Bond Trustee under this Bond
Indenture; and
(ii) the Bond Trustee may take any other action deemed proper by
the Bond Trustee that is not inconsistent with such direction.
provided, further, that, subject to the provisions of Section 20.1.4 hereof,
the Bond Trustee shall have the right to decline to follow any such direction
if, being advised by counsel, the
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Bond Trustee shall determine that the action so directed may not lawfully be
taken or if the Bond Trustee in good faith shall determine that the action so
directed would involve it in personal liability.
Where a Majority in Interest is required to make, give or
execute two or more applications, requests, consents, certificates, statements,
opinions or other instruments under this Bond Indenture, they may, but need
not, be consolidated and form one instrument.
(b) Every request, demand, authorization, direction,
notice, consent, waiver or application by the Issuer for action by
the Bond Trustee shall be accompanied by a certificate or certificates stating
that the conditions precedent, if any, to such action provided for in this Bond
Indenture have been complied with. In any case where several matters are
required to be certified or covered by any such certificate, it is not
necessary that all such matters be certified or covered by only one
certificate, but one agent authorized to act on behalf of the Issuer may
certify with respect to some matters and another such agent authorized to act
on behalf of such Majority in Interest as to other matters, and any such
representative may certify as to such matters in one or several documents.
(c) Any such certificate may be based, insofar as it
relates to legal matters, upon an opinion of counsel, unless the signatory
actually knows that the certificate or opinion or representations with respect
to the matters upon which his or her certificate or opinion is based are
erroneous. Any such opinion may be based, insofar as it relates to factual
matters, upon a certificate of, or representations by, an officer or officers
of Kmart, an Owner Trustee, the Issuer or the Note Trustee stating that the
information with respect to such factual matters is in possession of Kmart, an
Owner Trustee, the Issuer or the Note Trustee, unless such counsel actually
knows that the certificate or opinion or representations with respect to such
matters are erroneous.
(d) Any such request, demand, authorization, direction,
notice, consent, waiver or other action provided by this Bond Indenture to be
given or taken by Bondholders, except as otherwise expressly provided herein,
shall become effective when such instrument or instruments are delivered to the
Bond Trustee and, where it is hereby expressly required, to the Issuer and
Kmart. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Bondholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Bond Indenture and conclusive
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in favor of the Bond Trustee and the Issuer, if made in the manner provided in
this Section 19.
The fact and date of the execution of any such instrument or
writing may be proved (i) by the certificate of any notary public or other
officer of any jurisdiction authorized to take acknowledgments of deeds or
administer oaths that the Person executing such instrument acknowledged to him
the execution thereof, (ii) by a notarized affidavit of a witness to such
execution or (iii) by having the signature guaranteed by an Eligible Guarantor
Institution as that term is defined in Rule 17Ad-15 under the Exchange Act, and
where such execution is by an officer of a corporation, limited liability
company or association or a member of a partnership on behalf of such
corporation, limited- liability company, association or partnership, such
certificate or affidavit shall also constitute sufficient proof of his or her
authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any such manner which the Bond Trustee deems sufficient.
(e) The Bond Trustee may fix any date as the record date
for purposes of determining the Bondholders entitled to give or take any
request, demand, authorization, direction, notice, consent, waiver or other
action, or to vote on any action, authorized or permitted to be given or taken
by Bondholders, which date shall be no more than 60 days before the first
solicitation of a Bondholder made by any Person with respect to any such
action. If not set by the Bond Trustee prior to the first solicitation of a
Bondholder made by any Person with respect to any such action, or, in the case
of any such vote, prior to such vote, the record date for any such action or
vote shall be the 30th day (or, if later, the date of the most recent list of
Bondholders required to be provided pursuant to Section 10.1 hereof) prior to
the first solicitation or vote, as the case may be. With regard to any record
date, only the Bondholders on such date (or their duly designated proxies)
shall be entitled to give or take or vote on the relevant action.
(f) Any request, demand, authorization, direction,
notice, consent, waiver or other action by any Bondholder shall bind every
other holder of a Bond issued upon the transfer thereof or in exchange therefor
or in lieu thereof, whether or not notation of such action is made upon such
Bond.
(g) Without limiting the foregoing, a Bondholder entitled
hereunder to give or to take any such action with regard to any particular Bond
may do so with regard to all or any part of the principal amount of such Bond
or by one or more duly appointed agents each of whom may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
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(h) The Bond Trustee may rely and shall be protected in
acting or refraining from acting in reliance upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties.
(i) Whenever in the administration of this Bond Indenture
the Bond Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the Bond Trustee
(unless other evidence be herein specifically prescribed) may, in the absence
of bad faith on its part, rely upon an Officer's Certificate of the Issuer.
(j) The Bond Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Bond Indenture at the
request or direction of any of the Bondholders pursuant to this Bond Indenture
unless such Bondholders shall have offered to the Bond Trustee reasonable
security or indemnity (including, without limitation, the advancement of monies
for out-of-pocket costs) against the costs, expenses and liabilities which
might be incurred by it in compliance with such request or direction.
(k) For all purposes of this Bond Indenture, in the
absence of actual knowledge of a Responsible Officer of the Bond Trustee, the
Bond Trustee shall not be deemed to have knowledge of a Default (except the
failure of Kmart to pay any installment of Basic Rent, as defined in the Note
Indentures, when the same shall become due) unless notified in writing by any
Bondholder, the Owner Participant, the Owner Trustee, the Issuer, the Note
Trustee or Kmart.
(l) Whether or not therein expressly so provided, every
provision of this Bond Indenture relating to the conduct or affecting the
liability of or affording protection to the Bond Trustee shall be subject to
the provisions of this Section 19.
The Bond Trustee shall exclude and withhold from each
distribution to any Bondholder (except as otherwise required by law) of
principal, premium, if any, and interest and other amounts due hereunder or
under the Bonds any and all withholding taxes applicable thereto as required by
law. The Bond Trustee agrees (i) to act as such withholding agent and, in
connection therewith, whenever any present or future taxes or similar charges
are required to be withheld with respect to any amounts payable in respect of
the Bonds, to withhold such amounts and timely to pay the same to the
appropriate authority in the name of and on behalf of the Bondholders, (ii)
that it will file any necessary withholding tax returns or statements when due
and (iii) that, as promptly as possible after the payment of such amounts, it
will deliver to each Bondholder appropriate
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documentation showing the payment of such amounts, together with such
additional documentary evidence as such Bondholder may reasonably request from
time to time. The Bond Trustee agrees to file any other information reports as
it may be required to file under United States law. To the extent that the
Bond Trustee fails, with respect to any Bondholder, to withhold and pay over
any such taxes to the appropriate taxing authority, the Bond Trustee shall,
upon a claim being made for such taxes by such authority, and before making any
claim to Kmart or the Note Trustee for indemnification under the Master
Indemnification Agreement (if such indemnification would otherwise be
permissible thereunder), take all reasonable steps to recover such taxes from
such Bondholder, including, without limitation, withholding the amount of such
taxes from subsequent distributions, if any, to such Bondholder. To the extent
that the Bond Trustee receives any amount from Kmart or the Note Trustee, as
appropriate, for indemnification of such taxes which the Bond Trustee
thereafter recovers from the appropriate Bondholder (including by withholding
from subsequent distributions to such Bondholder) the Bond Trustee shall
reimburse Kmart or the Note Trustee, as appropriate, therefor.
(m) No Bondholder shall have the right to institute any suit,
action or proceeding at law or in equity or otherwise for the foreclosure of
this Bond Indenture or for the enforcement of any other remedy under or upon
this Bond Indenture, unless:
(i) the Bond Trustee shall have received a direction from
a Majority in Interest in accordance with this Section 19 requesting
that it institute such action, suit or proceeding and, if requested,
shall have been offered indemnity as provided in Section 19(j) hereof;
(ii) the Bond Trustee shall have refused or neglected to
institute any such action, suit or proceeding for 30 days after
receipt of such notice, request and offer of indemnity; and
(iii) no subsequent direction from a Majority in Interest
inconsistent with the first such direction has been given to the Bond
Trustee during such 30-day period.
It is understood and intended that no one or more of the
Bondholders shall have any right in any manner whatsoever hereunder or under
the Bonds (1) to surrender, impair, waive, affect, disturb or prejudice the
lien of this Bond Indenture on any property subject hereto or to the rights of
the Bondholders of any other Bonds, (2) to obtain or seek to obtain priority
over or preference to any other such Bondholder or (3) to enforce any right
under this Bond Indenture, except in the manner herein provided and for the
equal, ratable and common benefit of all of the Bondholders of all series,
subject to the provisions of this
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Bond Indenture. If no instructions are received from a Majority in Interest
within 10 days after notifying all of the Holders of the occurrence of a
Default hereunder, the Bond Trustee shall take such action as it shall deem
necessary or desirable for the protection of the Trust Estate and the interest
of the Holders therein.
In case the Bond Trustee shall have instituted any proceeding
to enforce any right, power or remedy under this Bond Indenture by foreclosure,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely to the Bond
Trustee, then and in every such case, the Bond Trustee and the Bondholders
shall be restored to their former positions and rights hereunder with respect
to the Trust Estate, and all rights, powers and remedies of the Bond
Trustee shall continue as if no such proceedings had been taken.
ARTICLE XX
20. The Bond Trustee.
20.1. Scope of Activities.
20.1.1. Actions under this Bond Indenture. Prior to its receipt of
notice of the occurrence of an Event of Default, the Bond Trustee shall
undertake to perform such duties and only such duties as are specifically set
forth in this Bond Indenture. In case an Event of Default has occurred, the
Bond Trustee shall exercise such of the rights and powers vested in it by this
Bond Indenture, and use the same degree of care and skill in its exercise as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs. The Bond Trustee shall not be liable or accountable
hereunder except for its own negligent action or omission or willful
misconduct.
20.1.2. Actions upon Request of Majority in Interest. Subject to the
provisions of Article XVI hereof, the Bond Trustee shall execute such waivers,
releases and disclaimers and exercise such rights, powers and remedies as may
be directed by a Majority in Interest; provided, however, that without the
prior written approval of all of the Holders, the Bond Trustee shall not
consent to or permit any modification of, or amendment to, this Bond Indenture.
In addition, without prior written approval of a Majority in Interest, the Bond
Trustee shall not waive the provisions concerning, or consent to waive such
provisions concerning, any proposed action by the Issuer under this Bond
Indenture.
20.1.3. Examination. The Bond Trustee, upon receipt of all
resolutions, certificates, statements, opinions, reports,
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documents, orders or other instruments, furnished to it pursuant to provisions
of this Bond Indenture, shall examine them to determine whether they appear on
their face to conform to the requirements of this Bond Indenture.
20.1.4. Liability. No provision of this Bond Indenture shall be
construed to relieve the Bond Trustee from liability for its own negligent
action or omission, or willful misconduct; provided, however, that:
(a) prior to the occurrence of an Event of Default:
(i) the duties and obligations of the Bond Trustee
hereunder shall be determined solely by the express provisions
of this Bond Indenture, and the Bond Trustee shall not be
liable except for the performance of such duties and
obligations as are specifically set forth in this Bond
Indenture, and no implied covenants or obligations shall be
read into this Bond Indenture against the Bond Trustee; and
(ii) in the absence of bad faith on the part of the Bond
Trustee, the Bond Trustee may conclusively rely upon any
certificates or opinions furnished to it and conforming to the
requirements of this Bond Indenture, as to the truth of the
statements and the correctness of the opinions expressed
therein;
(b) the Bond Trustee shall not be liable for any error of
judgment made in good faith by a responsible officer or responsible officers of
the Bond Trustee, unless it shall be proved that the Bond Trustee was negligent
in ascertaining the pertinent facts; and
(c) the Bond Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance with
the direction of a Majority in Interest relating to the time, method and place
of conducting any proceeding for any remedy available to it or exercising any
trust or power conferred upon it under this Bond Indenture.
20.1.5. Risk of Bond Trustee's Funds. None of the provisions
of this Bond Indenture shall require the Bond Trustee to expend or risk its own
funds or otherwise incur any personal financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if the Bond Trustee shall have reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it as provided in Section 19(j) hereof.
20.1.6. Execution of Continuation Statements. The Bond
Trustee shall execute continuation statements which shall be
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prepared and filed by the Issuer as required by the local law of each State in
which a Property is located to continue the effectiveness of the financing
statements filed pursuant to this Bond Indenture.
20.1.7. Actions under the Note Indenture. In exercising its rights
under the Assignment, the Bond Trustee shall exercise such rights in
accordance with the terms of this Bond Indenture and the Assignment.
20.2. Reliances, Permitted Actions and Limitations on Accountability.
Except as otherwise provided in Section 20.1:
(a) the Bond Trustee may rely, and shall be protected in
acting or refraining from acting, upon any resolution, Officer's Certificate,
certificate of auditors, or any other certificate, statement, instrument,
opinion, report, notice, request, direction, consent or other paper or document
believed by the Bond Trustee to be genuine and to have been signed or presented
by the proper party or parties;
(b) the Bond Trustee may consult with counsel (which may
be counsel for the Issuer) and the written advice or opinion of such counsel
shall be full and complete authorization and protection in respect of any
action taken or suffered or omitted to be taken by the Bond Trustee hereunder
in good faith and in accordance therewith;
(c) prior to the occurrence of an Event of Default
hereunder, the Bond Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent or other paper
or document, unless requested in writing so to do by not less than a Majority
in Interest;
(d) the Bond Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Bond Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney appointed
with due care by it;
(e) except as otherwise provided herein, the Bond Trustee
shall not be required to ascertain or inquire as to the performance or
observance of any of the covenants or agreements contained herein or in any
other instruments delivered to the Bond Trustee hereunder, to be performed or
observed by the Issuer or any party to any such other instruments, or to take
notice or be deemed to have notice or knowledge of a Default, except default in
the payment of monies to the Bond Trustee which the Issuer is required to pay,
or cause to be paid, to the Bond Trustee on or before a specified date or
within a specified time after receipt by the Bond Trustee of a notice or
certificate,
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unless the Bond Trustee shall have received from the Issuer, the Owner Trustee,
the Note Trustee or any Holder notice that a Default has occurred and
specifying the same. In the absence of such notice from the Issuer, the Owner
Trustee, the Note Trustee or any Holder, the Bond Trustee may assume that no
Default exists under this Bond Indenture. The Bond Trustee shall be required
to take notice of Defaults, of which it has knowledge, in the delivery of any
certificate or other document required to be delivered to the Bond Trustee
pursuant to Article V of this Bond Indenture, or default in the payment of
monies referred to in the preceding sentence, and upon obtaining knowledge of
any such default the Bond Trustee shall promptly notify the Issuer and the
Holders.
20.3. Limited Accountability. The recitals contained herein, in the
Bonds (except the Certificate of Authentication on each Bond) and in the other
Issuer Documents shall be taken as the statements of the Issuer, and the Bond
Trustee assumes no responsibility for the correctness of the same. The Bond
Trustee makes no representations as to the value or condition of the Trust
Estate or any part thereof, or as to the title of the Issuer thereto, or as to
the validity or genuineness of the Notes or any securities at any time pledged
and deposited with the Bond Trustee hereunder, or as to the validity or
sufficiency of this Bond Indenture or the Bonds. The Bond Trustee shall not be
accountable for the use or application by the Issuer of the proceeds of the
Bonds, or for the use or application of any monies paid over to or upon the
order of the Issuer by the Bond Trustee in accordance with any provision of
this Bond Indenture.
20.4. Holding Stipulations. Any monies received by the Bond Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated from other
funds except to the extent required by law and need not be held in an
interest-bearing account.
20.5. Requirements of Organization and Condition. The Bond Trustee
hereunder shall at all times be a banking corporation or association organized
and doing business under the laws of the United States or of any State,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000, and be subject to
supervision or examination by a federal or state banking authority. If such
banking corporation or association publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid supervising
or examining authority, then for the purposes of this Section 20.5, the
combined capital and surplus of such banking corporation or association shall
be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time the Bond
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Trustee shall cease to be eligible in accordance with the provisions of this
Section 20.5, it shall resign immediately in the manner and with the effect
specified in Section 20.6.
20.6. Resignation and Removal.
20.6.1. Notice of Resignation. The Bond Trustee, or any successor
hereafter appointed, may resign at any time by giving written notice thereof to
the Issuer. Upon receiving notice of the resignation of the Bond Trustee, the
Issuer shall promptly appoint a successor trustee by written instrument, in
duplicate, executed by order of the Board of Directors of the Issuer, one
counterpart of which shall be delivered to the resigning Bond Trustee and
another counterpart to the successor trustee. If no successor trustee shall
have been so appointed and have accepted appointment within 30 days after the
mailing of such notice of resignation or removal, a Majority in Interest may
appoint a successor trustee.
20.6.2. Removal upon Cessation of Eligibility. If at any time:
(a) the Bond Trustee shall cease to be eligible in
accordance with the provisions of Section 20.5 hereof and shall fail to resign
after written request therefor by the Issuer, or shall resign for any reason
whatsoever; or
(b) the Bond Trustee shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or any public officer shall take
charge or control of the Bond Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;
then, in either such case, (1) the Issuer may remove the affected trustee and
appoint a successor trustee by written instrument, in duplicate, executed by
order of the Board of Directors of the Issuer, a counterpart of which shall be
delivered to the Bond Trustee so removed, another counterpart to the successor
trustee, or (2) a Majority in Interest may appoint a successor trustee, which
appointment shall supersede any prior appointment by the Issuer or (3) any of
the Holders may petition any court of competent jurisdiction for the removal of
the Bond Trustee and the appointment of a successor trustee.
20.6.3. Removal by a Majority in Interest. A Majority in Interest
may at any time remove the Bond Trustee and appoint a successor trustee by
delivery to the Bond Trustee so removed, the successor trustee, the Issuer and
to the other Holders of an instrument in writing signed by such Holders.
20.6.4. Effectiveness. Any resignation or removal of the Bond
Trustee and appointment of a successor trustee pursuant to
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any of the provisions of this Section shall become effective upon acceptance of
appointment by the successor Bond Trustee as provided in Section 20.7.
20.7. Successor Bond Trustee.
20.7.1. Acceptance of Appointment. Any successor Bond Trustee
appointed as provided in Section 20.6 shall execute, acknowledge and deliver to
the Issuer, to its predecessor Bond Trustee and to the Holders, an instrument
accepting such appointment hereunder, and thereupon the resignation or removal
of the predecessor Bond Trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become fully vested
with all the rights, powers, duties and obligations of its predecessor
hereunder, with like effect as if originally named as Bond Trustee herein. The
predecessor Bond Trustee shall, at the written request of the successor Bond
Trustee, pay over to the successor Bond Trustee all monies at the time held by
it hereunder; and the Issuer and the predecessor Bond Trustee shall execute and
deliver such instruments and do such other things as may reasonably be required
for more fully and certainly vesting and confirming in the successor Bond
Trustee all such rights, powers, duties and obligations.
20.7.2. Eligibility upon Acceptance. No successor Bond Trustee shall
accept appointment as provided in this Section unless at the time of such
acceptance such successor Bond Trustee shall be eligible under the provisions
of Section 20.6.
20.7.3. Notice of Succession. Upon acceptance of appointment by a
successor Bond Trustee as provided in this Section, the Issuer shall mail a
notice of the succession of such trustee hereunder to all of the Holders, with
a copy to the successor trustee. If the Issuer fails to mail such notice
within 10 days after acceptance of appointment by the successor trustee, the
successor trustee shall cause such notice to be mailed at the expense of the
Issuer.
20.8. Merger or Consolidation. Any corporation into which the Bond
Trustee may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Bond Trustee shall be a
party, or any corporation succeeding to the business of the Bond Trustee, shall
be the successor of the Bond Trustee hereunder; provided that such corporation
shall be eligible under the provisions of Section 20.6, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
20.9. Limitation on Note Modification. The Bond Trustee shall not
modify or permit any modification of any material term of a Note (including,
but not limited to, the interest rate, the
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principal balance, the amortization schedule, the remaining term to maturity,
or any other term affecting the amount or timing of payments on the Note)
unless the Bond Trustee and the Tax Administrator have received an Opinion of
Counsel (at the expense of the party seeking to modify the Note) to the effect
that such modification would not be treated as giving rise, for federal income
tax purposes, to the acquisition of a new debt instrument by any of the REMICs.
20.10. Title, Management and Disposition of REO.
20.10.1. Actions Prior to Sale of REO. In the event that any
Property becomes an REO that is acquired by the Trust Estate, the Bond Trustee
shall manage, conserve, protect and operate each REO for the related Holders
solely for the purpose of its prompt disposition and sale. The Bond Trustee
shall use its best efforts to dispose of any REO for its fair market value
within 22 months of its acquisition, unless the Bond Trustee has been granted
an extension of time to dispose of such REO by the IRS pursuant to section
856(e)(3) of the Code (an "Extension"). If the Bond Trustee has been granted
an Extension, the Bond Trustee shall continue to attempt to sell the REO for
its fair market value for the period ending two months prior to the time such
Extension expires (the "Extended Period"). In the event the Bond Trustee is
unable to dispose of any REO within such 22-month or Extended Period, as the
case may be, the Bond Trustee shall ensure that such REO is auctioned to the
highest bidder within one month after the end of such 22-month period or
Extended Period, as the case may be. Neither the Bond Trustee nor any Person
acting on behalf of the Trust Estate shall provide financing from the Trust
Estate to any purchaser of such REO. The Bond Trustee shall advance such funds
as are necessary to accomplish such sale to the extent that the Bond Trustee
deems such advances to be recoverable out of sale proceeds, and the Bond
Trustee shall be entitled to reimburse itself therefor from such proceeds.
20.10.2. Protection of Interests in REO. Pursuant to its efforts to
sell any REO acquired by the Trust Estate, the Bond Trustee shall either itself
or through an agent selected by the Bond Trustee protect and conserve such REO
in the same manner and to such extent as is customarily done in connection with
own real estate acquired through foreclosure or by deed-in-lieu of foreclosure,
incident to its conservation and protection of the interests of the related
Holders, and may rent the same, or any part thereof, as the Bond Trustee deems
likely to increase the net proceeds distributable to the related Holders
subject to the terms and conditions described in this Section 20.10.
For the purpose of protecting the interests of the Trust Estate and
conserving the REO prior to sale, the Bond Trustee may
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contract with any Independent Contractor for the conservation, protection and
rental of any REO; provided that:
(a) the terms and conditions of any such contract may not be
inconsistent herewith;
(b) any such contract shall require, or shall be administered
to require, that the Independent Contractor (i) pay all costs and expenses
incurred in connection with the operation and management of such REO, (ii) hold
all related revenues in a segregated account insured by the FDIC and (iii)
remit all related revenues collected (net of such costs and expenses retained
by such Independent Contractor) to the Bond Trustee on a monthly or more
frequent basis; and
(c) none of the provisions of this Section 20.10 relating to
any such contract or to actions taken through any such Independent Contractor
shall be deemed to relieve the Bond Trustee of any of its duties and
obligations to the Trust Estate and the Holders with respect to the
conservation, protection and rental of any such REO.
The Bond Trustee shall be entitled to enter into any agreement with
any Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Bond Trustee by such
Independent Contractor and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Bond Trustee or any Independent Contractor
shall be entitled to a fee, based on the prevailing market rate (and set in
good faith at a reasonable level in the case of a fee payable to the Bond
Trustee), for the operation and management of any REO, which fee shall be an
expense of the Trust Estate with respect to the related Asset Group and shall
be payable out of the gross income on such REO.
20.10.3. Deposits to Bond Account. The Bond Trustee shall deposit
all funds collected and received in connection with the operation of any REO in
the related Bond Account no later than the second Business Day following
receipt of such funds.
20.10.4. Reimbursement of Bond Trustee Advances. The Bond Trustee,
upon the final disposition of any REO, shall be entitled to reimbursement of
any related unreimbursed advances it has made with respect thereto as well as
any unpaid REO fees from liquidation proceeds received in connection with the
final disposition of such REO; provided that any such unreimbursed advances as
well as any unpaid REO fees may be reimbursed or paid, as the case may be, out
of any net rental income or other net amounts derived from such REO.
20.10.5. Disposition Practices. The final disposition of any REO
shall be carried out by the Bond Trustee at the REO's
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<PAGE> 53
fair market value under the circumstances existing at the time of disposition
and upon such terms and conditions as the Bond Trustee shall deem necessary or
advisable, and as are in accordance with accepted mortgage servicing practices
and in accordance with Section 20.10.
20.10.6. Reports Pursuant to the Code. The Bond Trustee shall
prepare and file reports of foreclosure and abandonment in accordance with
section 6050J of the Code.
20.10.7. Prohibited Actions. Notwithstanding any other provision of
this Bond Indenture, no Person, acting on behalf of the Bond Trustee hereunder,
shall rent, lease, or otherwise earn income or take any action on behalf of the
Trust Estate with respect to any REO that might (a) cause such REO to fail to
qualify as "foreclosure property" within the meaning of section 860G(a)(8) of
the Code or (b) result in the receipt by any of the REMICs of any "income from
non-permitted assets" within the meaning of section 860F(a)(2) of the Code or
any "net income from foreclosure property" within the meaning of section
860G(c)(2) of the Code, both of which types of income are subject to tax under
the REMIC Provisions, unless the Bond Trustee has received an Opinion of
Counsel at the expense of the Trust Estate (and chargeable against the related
Asset Group), to the effect that, under the REMIC Provisions and any relevant
proposed legislation, any income generated for the related REMIC by the REO
would not result in the imposition of a tax upon such REMIC.
Without limiting the generality of the foregoing, the Bond Trustee
shall not:
(a) enter into, renew or extend any New Lease with respect to
any REO, if the New Lease by its terms will give rise to any income that does
not constitute Rents from Real Property;
(b) permit any amount to be received or accrued under any New
Lease other than amounts that will constitute Rents from Real Property;
(c) authorize or permit any construction on any REO, other
than the completion of a building or other improvement thereon, and then only
if more than ten percent of the construction of such building or other
improvement was completed before default on the related Notes became imminent,
all within the meaning of section 856(e)(4)(B) of the Code; or
(d) Directly Operate, or allow any other Person (other than
an Independent Contractor) to Directly Operate, any REO Property on any date
more than 90 days after its acquisition date;
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<PAGE> 54
unless, in any such case, the Bond Trustee has requested and received the
Opinion of Counsel described in the preceding sentence, in which case the Bond
Trustee may take such actions as are specified in such Opinion of Counsel.
20.10.8. Acquisition of Personal Property. The Bond Trustee shall
not acquire any personal property relating to any of the Properties pursuant to
this Section 20.10 unless either:
(a) such personal property is incident to real property
(within the meaning of section 856(e)(1) of the Code) so acquired by the Bond
Trustee; or
(b) the Bond Trustee shall have requested and received an
Opinion of Counsel, at the expense of the Trust Estate (and chargeable against
the related Asset Group), to the effect that the holding of such personal
property by any REMIC will not cause the imposition of a tax under the REMIC
Provisions on any REMIC related to the Trust Estate or cause any such REMIC to
fail to qualify as a REMIC at any time that any related Bond is outstanding.
Any actions required or permitted to be taken by the Bond Trustee
under this Section 20.10 may be taken by another Person on behalf of the Bond
Trustee.
20.11. Bond Trustee's Fees; Tax Administrator's Fees. In
consideration for their services hereunder, the Bond Trustee and the Tax
Administrator shall be entitled to a fee with respect to each REMIC, which
shall be paid by the Holders of the Residual Bonds of such REMIC. Such Holders
shall pay the fee into the related Reserve Fund. The Bond Trustee shall be
entitled to withdraw the funds for payment of its fee with respect to a
particular REMIC or for payment to the Tax Administrator of its fee with
respect to a particular REMIC solely from the related Reserve Fund.
ARTICLE XXI
21. Performance by the Note Trustee. Compliance by the Owner
Trustee or Note Trustee with any provisions of the Notes, the Mortgages or the
Note Indentures that, if done by the Issuer, would constitute compliance with
provisions of this Bond Indenture, shall be deemed compliance by the Issuer
with such provisions hereof. Performance by the Owner Trustee or Note Trustee
of any of the Issuer's obligations hereunder, whether or not pursuant to the
Notes, the Mortgages or the Note Indentures, shall be the equivalent of the
Issuer's performance thereof.
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<PAGE> 55
ARTICLE XXII
22. Prohibited Activities. Neither the Issuer, the Tax
Administrator, the Holders of Residual Bonds nor the Bond Trustee shall engage
in, nor shall the Bond Trustee permit, any of the following transactions or
activities unless it has received (a) a Special Tax Opinion and (b) a Special
Tax Consent from each of the Holders of the related Bonds (unless the Special
Tax Opinion specially provides that no REMIC- level tax will result from the
transaction or activity in question):
(i) the sale or other disposition of, or substitution for, any
of the Notes except pursuant to (A) a default with respect to such
Note, (B) the bankruptcy or insolvency of any REMIC or (C) the
termination of any REMIC pursuant to Article III hereof;
(ii) the acquisition of any Note for the Trust Estate
after the Startup Day except (A) during the three-month period
beginning on the Startup Day pursuant to a fixed- price contract in
effect on the Startup Day that has been reviewed and approved by tax
counsel acceptable to the Tax Administrator;
(iii) the sale or other disposition of any investment in a
Bond Account at a gain;
(iv) the acceptance of any contribution to any Asset Group
except the following cash contributions: (A) a contribution received
during the three-month period beginning on the Startup Day, (B) a
contribution to facilitate a complete redemption of the Bonds that is
made within the 90-day period beginning on the date on which a plan of
complete liquidation is adopted pursuant to Code section 860F(a)(4)
and Section 3.12 hereof or (C) a contribution to a Reserve Fund by the
Holders of the related Series of Residual Bonds in order to pay
expenses of the related REMIC; or
(v) any other transaction or activity that is not
contemplated by this Bond Indenture.
Any party causing the Trust Estate to engage in any of the activities
prohibited in this Section shall be liable for the payment of any tax imposed
on the Trust Estate or the REMICs pursuant to Code section 860F(a)(1) or
860G(d) as a result of such activities.
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ARTICLE XXIII
23. Certificate as to No Default; Information. At any time and
from time to time, the Issuer will deliver to the Bond Trustee promptly upon
request an Officer's Certificate, stating that to the best of the signer's
knowledge after making due inquiry, there is no Default hereunder, or if any
such Default exists to such officer's knowledge, specifying the nature and
period of existence thereof and what action the Issuer is taking or proposes to
take with respect thereto. The Issuer will also furnish, and will use its best
efforts to cause the Owner Trust or Kmart to furnish, promptly to any Holder,
such information with respect to any Property and any Lease as may be
reasonably requested.
ARTICLE XXIV
24. Additional Instruments. The Issuer, at its expense, will
execute, acknowledge, secure and deliver all such instruments and take all such
action as the Bond Trustee from time to time may reasonably request for the
better assuring of the properties and rights now or hereafter subjected to the
lien of this Bond Indenture or intended so to be.
ARTICLE XXV
25. Termination and Liquidation.
25.1. Satisfaction. The terms and conditions of this Bond Indenture
and the lien created hereby shall terminate upon the earlier of (a) the
delivery by the Issuer to the Bond Trustee of all of the Bonds of each Series
for cancellation or (b) the payment in full of the principal of, and interest
due and premium, if any, on, the Bonds and all other sums secured hereby and
upon delivery to the Bond Trustee of an Officer's Certificate of the Issuer and
an Opinion of Counsel for the Issuer, each stating that all conditions
precedent to the satisfaction and discharge of this Bond Indenture, with
respect to the Bonds, have been complied with. Thereupon, the Bond Trustee, at
the Issuer's expense shall execute, record and file, as appropriate, proper
instruments acknowledging that the liens and security interests created by this
Bond Indenture shall cease to secure the obligations under the Bonds and the
terms and conditions set forth in this Bond Indenture shall no longer apply to
the Bonds. Upon written request, the Bond Trustee shall give or cause to be
given to the Note Trustee notice of such termination, release and satisfaction.
In no event shall the trusts created hereby continue beyond the expiration of
21 years from the death of the survivor of the descendants of Joseph P.
Kennedy, the late Ambassador of the United States to the Court of St. James,
living on the date hereof.
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25.2. Authorization. By their acceptance of Residual Bonds, the Bond
Owners thereof hereby agree to authorize the Bond Trustee to adopt and sign a
plan of complete liquidation of the Trust Estate, which authorization shall be
binding upon all successor Bond Owners of Residual Bonds.
ARTICLE XXVI
26. Terms Subject to Applicable Law; Separability. All rights,
powers and remedies provided herein may be exercised only to the extent that
the exercise thereof does not violate any applicable law, and are intended to
be limited to the extent necessary so that they will not render this Bond
Indenture invalid, unenforceable or not entitled to be recorded, registered or
filed under any applicable law. If any term or provision of this Bond
Indenture shall be held to be invalid, illegal or unenforceable, the validity
of the other terms and provisions hereof shall in no way be affected thereby.
ARTICLE XXVII
27. Notices. All notices and other communications hereunder shall
be in writing, and delivered, telegraphed or mailed (by registered or certified
mail, postage prepaid), addressed:
<TABLE>
<S> <C>
(a) if to the Issuer:
FGHK, Inc.
c/o Pine Street Capital Corporation
750 Old Hickory Boulevard
Two Brentwood Commons, Suite 150
Brentwood, Tennessee 37027
Attention: James R. Greene
(b) if to the Bond Trustee:
The Bank of New York
101 Barclay Street, 21W
New York, New York 10286
Attention: Corporate Trust Administration
</TABLE>
or to such other address as the Issuer or the Bond Trustee may
hereafter designate, and shall be effective upon receipt as evidenced by a
receipt signed by a person at such address. A copy of each notice of an Event
of Default and all other notices or communications, including the text of any
proposed or final amendment or supplement to this Bond Indenture, hereunder
given by or to the Bond Trustee or the Issuer shall be contemporaneously
transmitted to Kmart, 3100
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West Big Beaver Road, Troy, Michigan 48084, Attention: , or to such
other address as Kmart may have designated by written notice to the Bond
Trustee. The provisions of the foregoing sentence are for the express benefit
of Kmart, shall be enforceable by it, and may not be modified or eliminated
without its consent.
Where this Bond Indenture provides for notice to Bondholders
of any event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed first-class postage prepaid, to
each Bondholder, at its address as it appears in the Bond Register, not later
than the latest date, and not earlier than the earliest date, prescribed for
the giving of such notice. Where this Bond Indenture provides for notice in
any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall be
the equivalent of such notice. Waivers of notice by Bondholders shall be filed
with the Bond Trustee, but such filing shall not be a condition precedent to
the validity of any action taken in reliance upon such waiver. In any case
where notice to Bondholders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Bondholder
shall affect the sufficiency of such notice with respect to other Bondholders,
and any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given.
ARTICLE XXVIII
28. No Recourse to the Issuer. Anything herein to the contrary
notwithstanding, neither the Bond Trustee nor the Issuer, nor any Affiliates,
officers, directors, employees, shareholders, incorporators or trustees thereof
shall be personally liable for the payment or performance of any of the
covenants, obligations or indemnifications contained in this Bond Indenture,
said covenants, obligations and indemnifications having been made by the Issuer
for the sole purpose of binding its interest as owner of the Trust Estate, and
the Bond Trustee agrees that in the event of the occurrence of a foreclosure
hereunder, it shall have no recourse against the Issuer, the Note Trustee or
their respective Affiliates, officers, directors, employees, shareholders or
incorporators for any deficiency, loss or claim resulting therefrom.
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ARTICLE XXIX
29. Miscellaneous.
29.1. Amendment. This Bond Indenture (a) may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought and (b) shall be binding upon the Issuer, its successors and assigns,
and all persons claiming under or through the Issuer, and shall inure to the
benefit of and be enforceable by the Bond Trustee and its respective successors
and assigns. The headings in this Bond Indenture are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. If
any of the provisions of this Bond Indenture or the Bonds shall require, or be
deemed or adjudicated to require, the payment, or permit the collection, of
interest in excess of the maximum permitted by law, the Issuer shall not be
obligated to pay, nor the Holders be permitted to collect, interest in excess
of the amount permitted by law, and the provisions of this sentence shall
supersede any conflicting provisions contained herein or in any of the Bonds.
This Bond Indenture shall be governed by and construed in accordance with the
laws of the State of New York without reference to the choice of law doctrine
of the State of New York. This Bond Indenture may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same instrument.
29.2. Legal Holidays. In any case where any Payment Date, Redemption
Date or Stated Maturity of any Bond shall not be a Business Day, then,
notwithstanding any other provision of this Bond Indenture, payment of
interest, principal, and premium, if any, need not be made on such date, and if
not made on such date shall instead be made on the next succeeding Business Day
with the same force and effect as if made on the Payment Date, Redemption Date
or at Stated Maturity, and, provided that such payment is so made on such next
succeeding Business Day, no interest shall accrue for the period from and after
such Payment Date, Redemption Date or Stated Maturity Date to and including
such next succeeding Business Day.
29.3. Benefits of Bond Indenture. Except to the extent of the rights
of the Owner Trustees as third-party beneficiaries as provided in the
Assignments, nothing in this Bond Indenture or in the Bonds, express or
implied, shall give to any Person, other than the parties hereto, their
successors and assigns hereunder and the Bondholders, any benefit or any legal
or equitable right, remedy or claim under this Bond Indenture.
29.4. Governing Law. This Bond Indenture and the Bonds shall be
construed in accordance with the laws of the State of New York, without
reference to its conflict of laws provisions (other than Section 5-1401 of the
General Obligations of the Law of New York), and the obligations, rights and
remedies of the parties hereunder and thereunder shall be determined in
accordance with such laws.
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ARTICLE XXX
30. Bond Trustee's Acceptance. The Bond Trustee accepts the trust
hereby declared and provided, and covenants and agrees to perform the same as
herein expressed.
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<PAGE> 61
IN WITNESS WHEREOF, the Issuer and the Bond Trustee have caused this
Bond Indenture to be executed and their respective corporate seals to be
hereunto affixed and attached by their proper officers thereunto duly
authorized, and each has hereunto set his or her hand, all as of the day and
year first above written.
FGHK, INC.,
as Issuer
[Corporate Seal]
<TABLE>
<S> <C>
By
____________________________
Name:
Title:
Attest:
____________________
Name:
Title:
Signed, Sealed and
Acknowledged in
the Presence of:
____________________
Name:
Title:
THE BANK OF NEW YORK,
as Bond Trustee
[Corporate Seal]
By
____________________________
Name:
Title:
Attest:
____________________
Name:
Title:
Signed, Sealed and
Acknowledged in
the Presence of:
____________________
Name:
Title:
</TABLE>
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<PAGE> 62
STATE OF )
: ss.:
COUNTY OF )
On the ____ day of ________, 1994, before me the undersigned authority
personally came _______________ whose name as ______________ of
__________________________, a ________ corporation, is signed to the foregoing
instrument and to me known, who, being by me duly sworn, did depose, say and
acknowledge before me that he is a ______________ of _________
________________, the corporation described in and which executed the foregoing
instrument; that he knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by order of
the board of directors of said corporation, that he signed his name thereto by
like order, and that being informed of the contents of said instrument, he, as
such officer and with full authority, executed the same voluntarily for and as
the act of said corporation.
__________________________
Notary Public
[Notary Seal]
<PAGE> 63
STATE OF )
: ss.:
COUNTY OF )
On the ____ day of ________, 1994, before me the undersigned authority
personally came _________________ whose name as a Trust Officer of
____________________________, a _____________ corporation, is signed to the
foregoing instrument and to me known, who, being by me duly sworn, did depose,
say and acknowledge before me that he is a Trust Officer of
____________________________, the corporation described in and which executed
the foregoing instrument; that he knows the seal of said corporation; that the
seal affixed to said instrument is such corporate seal; that it was so affixed
by order of the board of directors of said corporation, that he signed his name
thereto by like order, and that being informed of the contents of said
instrument, he, as such officer and with full authority, executed the same
voluntarily for and as the act of said corporation.
_________________________
Notary Public
[Notary Seal]
<PAGE> 64
EXHIBIT A
FORM OF OFFERED BOND
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY
TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY BOND ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC)
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "REGULAR
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT", AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED (THE "CODE").
THE PRINCIPAL OF THIS BOND IS PAYABLE IN INSTALLMENTS AS SET FORTH HEREIN.
ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS BOND AT ANY TIME MAY BE
LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
SECURED LEASE BOND, SERIES [A][B][C]
<TABLE>
<S> <C>
NO.: __ Initial Principal
Amount of this Bond: $_____________
CUSIP NO. ______ Initial Aggregate
Principal Amount of
the Series [A][B][C]
Bonds: $_____________
Interest Rate: __% per annum
Issue Date: March __, 1994
Maturity Date:
</TABLE>
This is one of the Secured Lease Bonds, Series [A][B][C], issued
pursuant to a collateral trust indenture (the "Bond Indenture") dated as of
March __, 1994, between FGHK, Inc., a special-purpose corporation organized and
existing under the laws of the State of New York (the "Issuer"), and The Bank
of New York, as Bond Trustee. Capitalized terms used but not defined
A-1
<PAGE> 65
herein shall have the meanings ascribed to them in the Bond Indenture.
This certifies that ______________________ is the registered owner of
the percentage interest (the "Percentage Interest") (obtained by dividing the
Initial Principal Amount of this Bond specified above by the Initial Aggregate
Principal Amount of Series [A][B][C] Bonds above) of the rights and interests
of the Series [A][B][C] Bonds in a trust estate (the "Trust Estate") consisting
primarily of the Series [A][B][C] Notes and the Issuer's rights and interests
under the Note Indentures assigned to the Bond Trustee by the Issuer.
This Bond is issued under and is subject to the terms, provisions and
conditions of the Bond Indenture, to which the Holder of this Bond by virtue of
the acceptance hereof assents and by which such Holder is bound.
The Issuer, for value received, hereby promises to pay on each
Payment Date to the Holder hereof, or registered assigns thereof, in payment of
principal owing hereon, an amount equal to the product of (i) the Percentage
Interest and (ii) the aggregate amount, if any, payable as a Sinking Fund
payment on the Series [A][B][C] Bonds as set forth in the Schedule of Sinking
Fund Payments in the Bond Indenture, as such schedule may be amended from time
to time pursuant to Article III of the Bond Indenture; provided, however, that
the entire unpaid principal amount of this Bond shall be due and payable on the
earlier of [_________, ____][_________, ____][_________, ____]; and provided
further that the entire unpaid principal amount of this Bond, or any portion
hereof, may be payable on any Payment Date that is a Redemption Date, pursuant
to Article III of the Bond Indenture.
Interest will be payable on this Bond on each Payment Date and will
accrue at a rate of ___% from and including the most recent preceding Payment
Date on which interest has been paid to the Holder of this Bond to, but
excluding, such Payment Date or, in the case of the Payment Date on July 1,
1994, the period from the date of issuance of this Bond to such Payment Date.
Interest will be computed on the basis of a 360-day year consisting of 12
months of 30 days each.
If on any Payment Date amounts available for distribution to the
Bondholders are insufficient to pay in full all amounts then due, then such
amounts shall be distributed as payment of principal and interest, pro rata
among the Bonds, without any preference or priority of one Bond over another,
according to the aggregate amount due for principal, premium, if any, and
interest (including any Make-Whole Premium) on such Payment Date.
In the event that on any Payment Date the interest accrued on this
Bond or the Sinking Fund payment or premium to be paid
A-2
<PAGE> 66
hereon is not paid in full to the Holder of this Bond, interest shall accrue on
the unpaid amount of interest or principal at a rate of 1.0% plus the interest
rate otherwise applicable to this Bond from and including such Payment Date to
and including the date on which such unpaid amount is distributed to the Holder
of this Bond.
Under certain limited circumstances set forth in the Bond Indenture,
Holders of Series [A][B][C] Bonds will be entitled to receive a Make-Whole
Premium in connection with the redemption of such Bonds in whole or in part
before the Maturity Date specified on the face hereof.
Reference is made to the further provisions of this Bond set forth on
the reverse hereof and in the Bond Indenture, which shall have the same effect
as though fully set forth on the face of this Bond.
Unless the certificate of authentication hereon has been executed by
the Bond Trustee whose name appears below by manual signature, this Bond shall
not be entitled to any benefit under the indenture referred to on the reverse
hereof, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: FGHK, INC.,
as Issuer
By:______________________
Name:
Title:
A-3
<PAGE> 67
BOND TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Bonds designated above and referred to in the
within-mentioned Bond Indenture.
Date: THE BANK OF NEW YORK,
not in its individual capacity,
but solely as Bond Trustee
under the Bond Indenture
By:__________________________
Authorized Signatory
A-4
<PAGE> 68
EXHIBIT B
FORM OF RESIDUAL BOND
THIS CLASS R CERTIFICATE HAS NO PRINCIPAL BALANCE, DOES NOT BEAR INTEREST AND
WILL NOT RECEIVE ANY DISTRIBUTIONS EXCEPT AS PROVIDED HEREIN.
SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE IS A "RESIDUAL
INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT", AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED (THE "CODE").
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). ANY RESALE OR TRANSFER OF THIS CERTIFICATE
WITHOUT REGISTRATION THEREOF UNDER THE SECURITIES ACT MAY ONLY BE MADE IN A
TRANSACTION EXEMPTED FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION 2.4 OF THE BOND INDENTURE
REFERRED TO HEREIN.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
PROPOSED TRANSFEREE DELIVERS TO THE TAX ADMINISTRATOR AND THE BOND TRUSTEE A
TRANSFEREE AGREEMENT AND EITHER A BENEFIT PLAN AFFIDAVIT OR A BENEFIT PLAN
OPINION IN ACCORDANCE WITH THE PROVISIONS OF SECTION 2.4.1 OF THE BOND
INDENTURE REFERRED TO HEREIN. NOTWITHSTANDING ANYTHING ELSE TO THE CONTRARY
HEREIN, ANY PURPORTED TRANSFER OF THIS CERTIFICATE TO OR ON BEHALF OF AN
EMPLOYEE BENEFIT PLAN SUBJECT TO ERISA OR TO THE CODE WITHOUT THE BENEFIT PLAN
OPINION TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO EFFECT.
NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS THE
TAX ADMINISTRATOR DELIVERS ITS WRITTEN CONSENT TO SUCH TRANSFER TO THE BOND
TRUSTEE PURSUANT TO SECTION 2.4.1 OF THE BOND INDENTURE REFERRED TO HEREIN,
WHICH CONSENT SHALL NOT BE GIVEN IN CONNECTION WITH ANY PROPOSED TRANSFER TO A
DISQUALIFIED ORGANIZATION OR ANY PROPOSED TRANSFER WHICH WOULD RESULT IN THE
ISSUER OR THE TRUST ESTATE BEING DEEMED TO BE AN "INVESTMENT COMPANY" WITHIN
THE MEANING OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED. A DISQUALIFIED
ORGANIZATION IS ANY OF (a) THE UNITED STATES, (b) ANY STATE OR POLITICAL
SUBDIVISION THEREOF, (c) ANY FOREIGN GOVERNMENT, (d) ANY INTERNATIONAL
ORGANIZATION, (e) ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING, (f)
ANY TAX-EXEMPT ORGANIZATION (OTHER THAN A COOPERATIVE DESCRIBED IN SECTION 521
OF THE CODE) THAT IS EXEMPT FROM FEDERAL INCOME TAX UNLESS SUCH ORGANIZATION IS
SUBJECT TO TAX UNDER THE UNRELATED BUSINESS TAXABLE INCOME PROVISIONS OF THE
CODE, (g) ANY ORGANIZATION DESCRIBED IN SECTION 1381(A)(2)(C) OF THE CODE, OR
(h) ANY OTHER ENTITY IDENTIFIED AS A DISQUALIFIED ORGANIZATION BY THE REMIC
PROVISIONS. A CORPORATION WILL NOT BE TREATED AS AN INSTRUMENTALITY OF THE
UNITED STATES OR ANY STATE OR POLITICAL SUBDIVISION THEREOF IF ALL OF ITS
ACTIVITIES ARE SUBJECT TO TAX AND, WITH THE EXCEPTION OF THE FEDERAL HOME LOAN
MORTGAGE CORPORATION, A MAJORITY OF ITS BOARD OF DIRECTORS IS NOT SELECTED BY
SUCH GOVERNMENTAL UNIT.
<PAGE> 69
SECURED LEASE BONDS, SERIES [AR][BR][CR]
<TABLE>
<S> <C>
No: __ Percentage Interest
Represented by this Bond: ___%
Maturity Date:
</TABLE>
This is one of the Secured Lease Bonds, Series [AR][BR][CR], issued
pursuant to a collateral trust indenture (the "Bond Indenture") dated as of
March __, 1994, between FGHK, Inc., a special-purpose corporation organized and
existing under the laws of the State of New York (the "Issuer"), and The Bank
of New York, as Bond Trustee. Capitalized terms used but not defined herein
shall have the meanings ascribed to them in the Bond Indenture.
This certifies that ______________________ is the registered owner of
the Percentage Interest specified above of the rights and interests of the
Series [AR][BR][CR] Bonds in a trust estate (the "Trust Estate") consisting
primarily of the Series [A] [B] [C] Notes and an assignment of the Issuer's
rights and interests under the Note Indentures.
This Bond is issued under and is subject to the terms, provisions and
conditions of the Bond Indenture, to which the Holder of this Bond by virtue of
the acceptance hereof assents and by which such Holder is bound.
No distributions are expected to be made on this Series [AR][BR][CR]
Bond and any distribution of the proceeds of any remaining assets of the Trust
Estate will be made net of any amount by which the Holder is delinquent with
respect to payments required to be made by such Holder (or any predecessor in
interest to such holder) pursuant to Section 2.6.6(h) or 20.11 of the Bond
Indenture and only upon presentation and surrender of this Bond at the
Corporate Trust Office or the office or agency maintained by the Bond Trustee
in New York City, New York.
No transfer of a Residual Bond shall be made unless such transfer is
made pursuant to an effective registration statement under the Securities Act
and any applicable state securities laws or is exempt from the registration
requirements under the Securities Act and such state securities laws. In the
event that a transfer is to be made in reliance upon an exemption from the
Securities Act and such laws, in order to assure compliance therewith, the
Holder desiring to effect such transfer and such Holder's prospective
transferee shall each certify to the Bond Trustee in writing the facts
surrounding the transfer as provided in Section 2.4.1(a) of the Bond Indenture.
In the event that such transfer is to be made within two years from the date of
the initial issuance of Bonds pursuant hereto (other than a transfer as to
which the proposed transferee has provided a Rule 144A
B-2
<PAGE> 70
Letter), there shall also be delivered to the Bond Trustee an opinion of
counsel that such transfer may be made pursuant to an exemption from the
Securities Act and such state securities laws. Each Holder of a Residual Bond
desiring to effect such transfer shall, and does hereby agree to, indemnify the
Bond Trustee, the Issuer, Kmart, the Owner Participant and the Owner Trustee
against any liability that may result if the transfer is not so exempt or is
not made in accordance with such federal and state laws.
No transfer of a Residual Bond shall be made unless the transferee
provides the Tax Administrator and the Bond Trustee with (a) a Transferee
Agreement substantially in the form of Exhibit H to the Bond Indenture and (b)
either (i) a Benefit Plan Affidavit or (ii) a Benefit Plan Opinion as provided
in Section 2.4.1(b) of the Bond Indenture.
The Bond Trustee shall not register any transfer of a Residual Bond
(including any beneficial interest therein) unless it shall have received the
written consent of the Tax Administrator. The Tax Administrator shall not give
such consent (a) to any proposed transfer to any investor that is a
Disqualified Organization or (b) if such transfer would result in the Issuer or
the Trust Estate being deemed to be an "investment company" within the meaning
of the Investment Company Act of 1940, as amended. As prerequisites to the Tax
Administrator's consent to any other transfer, the proposed transferee
(including an initial purchaser) of a Residual Bond, or any beneficial interest
therein, must provide the Tax Administrator and the Bond Trustee with (a) the
items specified in the preceding paragraph, (b)(i) if the transferee is a Non-
U.S. Person, an affidavit in substantially the form attached as Exhibit B-1 to
Exhibit H to the Bond Indenture and (ii) if the transferee is a U.S. Person, an
affidavit in substantially the form attached as Exhibit B-2 to Exhibit H to the
Bond Indenture and (c) if the proposed transferee is a Non-U.S. Person, a
certificate, signed by the transferor, stating whether the Residual Bond has
"tax avoidance potential" as defined in Treasury Regulations Section
1.860G-3(a)(2) (a "TAPRI Certificate"); provided, however, that a TAPRI
Certificate shall not be required with respect to the initial issuance by the
Issuer. Notwithstanding the fulfillment of the prerequisites described above,
the Tax Administrator may withhold its consent to a transfer, but only to the
extent necessary to avoid a risk of (a) disqualification of the Pool [A][B][C]
REMIC as a REMIC or (b) the imposition of a tax upon the Pool [A][B][C] REMIC.
In addition, the Tax Administrator shall not give its consent to the transfer
of less than an entire interest in a Residual Bond unless (a) the interest
transferred is an undivided interest or (b) the transferor or the transferee
provides the Tax Administrator with an Opinion of Counsel that the transfer
will not jeopardize the REMIC status of the Pool [A][B][C] REMIC.
Any attempted or purported transfer of any ownership interest in a
Residual Bond in violation of these provisions shall be absolutely null and
void and shall vest no rights in the
B-3
<PAGE> 71
purported transferee. If any purported transferee shall become a Holder of a
Residual Bond in violation of these provisions, then the last preceding
Permitted Transferee shall be restored to all rights as Holder thereof
retroactive to the date of registration of Transfer of such Residual Bond.
Each Holder of this Bond shall be deemed to have agreed to be bound by
all of the relevant restrictions of Section 2.4 of the Bond Indenture.
Each Holder of this Bond shall be deemed to have agreed to make the
payments required by (a) Section 2.6.6(h) of the Bond Indenture with respect to
taxes and (b) Section 20.11 of the Bond Indenture with respect to certain fees.
Unless the certificate of authentication hereon has been executed by
the Bond Trustee whose name appears below by manual signature, this Bond shall
not be entitled to any benefit under the Bond Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
* * *
B-4
<PAGE> 72
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
<TABLE>
<S> <C>
Date: FGHK, INC.
By: ________________________________
Name:
Title:
</TABLE>
B-5
<PAGE> 73
BOND TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Bonds designated above and referred to in
the within-mentioned Bond Indenture.
Date: THE BANK OF NEW YORK,
not in its individual capacity,
but solely as Bond Trustee
under the Bond Indenture
By: _________________________
Authorized Signatory
B-6
<PAGE> 74
EXHIBIT C
FORM OF REVERSE OF BOND
On each Payment Date, pursuant to Article III of the Bond
Indenture, the Bond Trustee shall withdraw monies from the Pool A Bond Account,
the Pool B Bond Account or the Pool C Bond Account, as appropriate, and apply
such monies first to the payment of interest accrued on the Offered Bonds, as
described below, and second to the payment of principal scheduled to be paid
to the Offered Bonds as Sinking Fund payments on such Payment Date. Monies
received subsequent to any Payment Date with respect to payments on the Notes,
including redemptions thereof, due on such Payment Date will be withdrawn from
the Pool A Bond Account, the Pool B Bond Account or the Pool C Bond Account,
as appropriate, by the Bond Trustee and applied to the redemption of the
Offered Bonds, in whole or in part, pursuant to Article III of the Bond
Indenture.
Interest shall accrue on the Offered Bonds at the rate set
forth on the face of each Offered Bond.
On any Payment Date on which payments of interest and
principal on this Bond do not constitute payment in full of this Bond, such
payments shall be made by check mailed to the Holder of this Bond to such
address as such Holder shall specify or if such Holder holds Bonds having an
aggregate initial principal amount of at least $5,000,000 so specifies in
written notice to the Trustee received no fewer than five days prior to such
Payment Date, and provided an account number is included in the Register,
payments will be made by wire transfer in immediately available funds to such
account. Any reduction in the principal amount of this Bond (or any one or
more predecessor Bonds) effected by any payments made on any Payment Date shall
be binding upon all future Holders of this Bond and of any Bond issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof,
whether or not noted hereon. Final payment in full of any Bonds shall be made
only against surrender and delivery of such Bond to the Bond Trustee at the
Corporate Trust Office.
As provided in the Bond Indenture, and subject to certain
limitations set forth therein, the transfer of this Bond may be registered on
the Register upon surrender of this Bond for registration of transfer at the
Corporate Trust Office of the Bond Trustee pursuant to the Bond Indenture, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Bond Trustee duly executed by, the Holder hereof or his or
her attorney duly authorized in writing, with such signature guaranteed by a
commercial bank or trust company located, or having a correspondent located, in
The City of New York or the city in which the Corporate Trust Office is
located, or a member firm of a national securities exchange, and such other
documents as the Bond Trustee may require, and thereupon one or more new Bonds
of authorized denominations and in the same aggregate principal amount will be
issued to the designated
C-1
<PAGE> 75
transferee or transferees. No service charge will be charged for any
registration of transfer or exchange of this Bond, but the transferor may be
required to pay a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection with any such registration of transfer or
exchange.
Each Bondholder, by acceptance of a Bond, and each Bond Owner,
by acceptance of a beneficial interest in a Bond, covenants and agrees by
accepting the benefits of the Bond Indenture that such Bondholder will not at
any time institute against Kmart, the Issuer, the Owner Participant, or the
Owner Trustee, or join in any institution against Kmart, the Issuer, the Owner
Participant or the Owner Trustee of any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any United States
Federal or state bankruptcy or similar law in connection with any obligations
relating to the Bonds or the Bond Indenture.
Prior to the due presentment for registration of transfer of
this Bond, the Issuer, the Bond Trustee and any agent of the Issuer or the Bond
Trustee may treat the Person in whose name this Bond is registered as the owner
hereof for all purposes, whether or not this Bond be overdue, and neither the
Issuer, the Bond Trustee nor any such agent shall be affected by notice to the
contrary.
The Bond Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Issuer and the rights of the Holders of the Bonds under the
Bond Indenture at any time by the Issuer with the consent of a Majority in
Interest. The Bond Indenture also contains provisions permitting a Majority in
Interest, on behalf of the holders of all the Offered Bonds, to waive
compliance by the Issuer with certain provisions of the Bond Indenture and
certain past defaults under the Bond Indenture and their consequences. Any
such consent or waiver by the Holder of this Bond (or any one or more
predecessor Bonds) shall be conclusive and binding upon such Holder and upon
all future Holders of this Bond and of any Bond issued upon the registration of
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent or waiver is made upon this Bond. The Bond Indenture also
permits the Bond Trustee to amend or waive certain terms and conditions of the
Bond Indenture without the consent of Holders of the Bonds issued thereunder.
This Bond and the Bond Indenture shall be construed in
accordance with the laws of the State of New York, without reference to its
conflict of law provisions (other than Section 5-1401 of the General
Obligations Law of New York), and the obligations, rights and remedies of the
parties hereunder and thereunder shall be determined in accordance with such
laws.
C-2
<PAGE> 76
No reference herein to the Bond Indenture and no provision of
this Bond or of the Bond Indenture shall alter or impair the obligation of the
Issuer, which is absolute and unconditional, to pay the principal of and
interest on this Bond at the times, place and rate, and in the coin or currency
herein prescribed.
C-3
<PAGE> 77
Assignment
FOR VALUE RECEIVED, the undersigned hereby sells,
assigns and transfers unto ______________________________________
_________________________________________________________________
(name and address of assignee)
the within Bond and all rights thereunder, and hereby irrevocably constitutes
and appoints attorney, to transfer said Bond on the books kept for registration
thereof, with full power of substitution in the premises.
Social Security or Taxpayer I.D. or other identifying number of assignee:
<TABLE>
<S> <C>
Dated: _____________ __________________________*
Signature Guaranteed:
__________________________
______________________
</TABLE>
* NOTE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within Note
in every particular, without alteration, enlargement or any change
whatsoever.
C-4
<PAGE> 78
EXHIBIT D
FORM OF DEPOSITORY AGREEMENT
[Intentionally Omitted]
D-1
<PAGE> 79
EXHIBIT E
FORM OF TRANSFEROR CERTIFICATE
[Intentionally Omitted]
E-1
<PAGE> 80
EXHIBIT F
FORM OF INVESTMENT LETTER
[Intentionally Omitted]
F-1
<PAGE> 81
EXHIBIT G
FORM OF RULE 144A LETTER
[Intentionally Omitted]
G-1
<PAGE> 82
EXHIBIT H
FORM OF TRANSFEREE AGREEMENT
[Intentionally Omitted]
H-1
<PAGE> 83
SCHEDULE I
SINKING FUND PAYMENTS
[Intentionally Omitted]
SI-1
<PAGE> 1
EXHIBIT 4.2
FIRST SUPPLEMENTAL AND RESTATED
TRUST INDENTURE, ASSIGNMENT OF LEASE AND RENTS
AND SECURITY AGREEMENT
(1993 - __)
dated as of March __, 1994,
between
[SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION]
[SOCIETY NATIONAL BANK],
a national banking association,
not in its individual capacity except as expressly
stated herein, but solely as Owner Trustee
under the Trust Agreement dated
as of December 15, 1993, with
the Owner Participant,
and
THE BANK OF NEW YORK,
a New York banking corporation,
as Note Trustee
Location of Property:
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
GRANTING CLAUSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
<CAPTION>
ARTICLE 1
<S> <C>
PROVISIONS
OF GENERAL APPLICATION . . . . . . . . . . . . . . . . . 8
SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 1.2 Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 1.3 Form of Documents Delivered to Note
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 1.4 Acts of Noteholders; Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 1.5 Requests, etc., to Note Trustee, Kmart,
Owner Trustee and Owner Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 1.6 Notices to Noteholders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1.7 Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 1.8 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 1.9 Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 1.10 Benefits of Note Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 1.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 1.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 1.13 Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 1.14 No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
<CAPTION>
ARTICLE 2
THE NOTES
<S> <C>
SECTION 2.1 Issuable in Series; Designations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.2 Form and Denomination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.3 Equally and Ratably Secured Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2.4 Execution of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.5 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.6 Registration, Registration of Transfer and
Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 2.7 Mutilated, Destroyed, Lost and Stolen
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.8 Payment of Interest and Principal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.9 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.10 Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.11 Authentication, Execution, Delivery and
Dating of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 2.12 Source of Payments; Rights and
Liabilities of Owner Trustee; Owner
Participant Not Liable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.13 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
<CAPTION>
ARTICLE 3
SATISFACTION AND DISCHARGE
<S> <C>
SECTION 3.1 Satisfaction and Discharge of Note
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 3.2 Application of Deposited Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.3 Assignment of Right to Receive Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
<CAPTION>
ARTICLE 4
RECEIPT, DISTRIBUTION AND APPLICATION OF
INCOME AND PROCEEDS FROM THE NOTE INDENTURE ESTATE
<S> <C>
SECTION 4.1 Basic Rent; Interest on Overdue
Installments of Basic Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 4.2 Amounts Received as Result of Event of
Loss; Partial Condemnation, or Exercise of
Option to Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.3 Amounts Received After, or Held at Time
of, Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.4 Amounts Received for which Provision Is
Made in an Operative Document . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.5 Amounts Received for which No Provision Is
Made . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.6 Payments to Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.7 Excepted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
<CAPTION>
ARTICLE 5
COVENANTS
<S> <C>
SECTION 5.1 Payment of Principal, Premium, if any, and
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 5.2 Money for Note Payments To Be Held in
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.3 Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.4 Title; Further Assurances; Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.5 Termination of Trust Agreement and
Transfer of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.6 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 5.7 Discharge of Liens, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 5.8 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
<CAPTION>
ARTICLE 6
REDEMPTION OF NOTES
<S> <C>
SECTION 6.1 Applicability of Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 6.2 Notice to Note Trustee of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.3 Notes To Be Redeemed Pro Rata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.4 Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.5 Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.6 Notes Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 6.7 Notes Redeemed In Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
<CAPTION>
ARTICLE 7
SINKING FUND
<S> <C>
SECTION 7.1 Sinking Fund for Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
<CAPTION>
ARTICLE 8
EVENTS OF DEFAULT; REMEDIES
<S> <C>
SECTION 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 8.2 Acceleration upon Notice; Rescission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 8.3 Enforcement of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8.4 Specific Remedies; Limitations on
Enforcement of Claims without Possession
of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.5 Actions for Ratable Benefit of Note-
holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.6 Noteholders May Demand Enforcement of
Rights by Note Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.7 Control by Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.8 Noteholder May Not Bring Suit Except Under
Certain Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.9 Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.10 Right of Owner Trustee To Pay Interest,
Principal, etc.; Note Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.11 Right of Noteholders to Receive Payment
Not to Be Impaired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.12 No Action Contrary to Lessee's Rights
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C>
under the Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.13 Waiver of Stay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.14 Right of Note Trustee To Perform
Covenants, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.15 Certain Other Rights of Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.16 Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.17 Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
<CAPTION>
ARTICLE 9
THE NOTE TRUSTEE
<S> <C>
SECTION 9.1 Certain Rights and Duties of Note Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 9.2 Not Responsible for Recitals or Issuance
of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 9.3 Note Trustee and Authorized Agents May
Hold Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 9.4 Funds May Be Held by Note Trustee;
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 9.5 Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 9.6 Corporate Note Trustee Required;
Eligibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.7 Resignation and Removal; Appointment of
Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.8 Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 9.9 Merger, Conversion, Consolidation or
Succession to Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
SECTION 9.10 Co-Trustee or Separate Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
<CAPTION>
ARTICLE 10
NOTEHOLDERS' LISTS
<S> <C>
SECTION 10.1 List of Names and Addresses of
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
<CAPTION>
ARTICLE 11
SUPPLEMENTAL INDENTURES
<S> <C>
SECTION 11.1 Supplemental Indentures without Consent
of Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 11.2 Supplemental Indentures with Consent of
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
SECTION 11.3 Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
SECTION 11.4 Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>
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<S> <C>
SECTION 11.5 Reference Notes to Supplemental
Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
<CAPTION>
ARTICLE 12
SUBSTITUTION OF PROPERTIES
<S> <C>
SECTION 12.1 Substitution of Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.2 Purchaser Not Bound to Inquire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.3 Appoint Note Trustee Attorney-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
<CAPTION>
ARTICLE 13
SUNDRY PROVISIONS
<S> <C>
SECTION 13.1 Kmart Not Liable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
<CAPTION>
APPENDICES AND EXHIBITS
<S> <C>
Appendix A Definitions and Rules of Usage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Exhibit N Form of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N-1
Exhibit P Address for Surrender of Interim Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-1
</TABLE>
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<PAGE> 7
FIRST SUPPLEMENTAL AND RESTATED TRUST INDENTURE, ASSIGNMENT OF LEASE AND
RENTS AND SECURITY AGREEMENT dated as of March __, 1994, between [Shawmut Bank
Connecticut, National Association,] [Society National Bank,] a national banking
association, not in its individual capacity, except as expressly provided
herein, but solely as Owner Trustee (the "Owner Trustee") under the Trust
Agreement dated as of December 15, 1993 (the "Trust Agreement"), with the Owner
Participant, and The Bank of New York, a New York banking corporation, as
trustee (the "Note Trustee") for the benefit of the Noteholders.
RECITALS:
A. The Owner Participant and the Owner Trustee have entered into the Trust
Agreement whereby, among other things, the Owner Trustee has declared a certain
trust for the use and benefit of the Owner Participant, subject, however, to
the lien and security interest of this Note Indenture, and the Owner Trustee is
authorized and directed to execute and deliver, inter alia, this Note
Indenture, the Notes and the Mortgage;
B. The Owner Trustee and the Note Trustee have heretofore executed and
delivered a Trust Indenture, Assignment of Lease and Rents and Security
Agreement dated as of December 15, 1993 (the "Original Note Indenture");
C. The Owner Trustee has authorized the execution and delivery of notes,
issuable in one or more series in accordance with the terms of this Note
Indenture and, to secure such notes and to provide for the authentication and
delivery thereof by the Note Trustee, the Owner Trustee has duly authorized the
execution and delivery of this Note Indenture; and
D. The Lease, provisions of which have been referred to in the text of this
Note Indenture, has been executed and delivered contemporaneously with the
Original Note Indenture and a Memorandum of Lease with respect thereto has been
recorded prior to the Mortgage and the Assignment.
E. Section 11.2 of the Original Note Indenture provides that, with the
consent of a Majority in Interest of Noteholders by Directive delivered to the
Owner Trustee, Kmart and the Note Trustee, the Owner Trustee may, and the Note
Trustee, subject to Section 11.3 of the Original Note Indenture, shall, enter
into Supplemental Indentures for the purpose of adding any provisions to or
changing in any manner the rights and obligations of the Noteholders and of the
Owner Trustee under the Original Note Indenture, subject to the proviso set
forth in such Section 11.2;
<PAGE> 8
F. The Owner Trustee and Note Trustee desire to supplement the Original
Note Indenture and amend and restate the notes issued thereby, a Majority in
Interest of Noteholders have consented thereto by delivering a Directive to the
Owner Trustee, the Note Trustee and Kmart, and the Owner Trustee and the Note
Trustee have duly authorized the execution and delivery of this supplement to
and restatement of the original Indenture including the issuance of the Notes,
and have done all things necessary to make this Note Indenture a valid
agreement of the Owner Trustee and Note Trustee, in accordance with its terms.
NOW, THEREFORE, THIS NOTE INDENTURE WITNESSETH that in consideration of the
premises and of the acceptance by the Note Trustee of the trust hereby created
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, in order to secure (a) the payment of the
principal of, premium, if any, and interest on the Notes Outstanding from time
to time hereunder according to their tenor and effect and (b) the performance
and observance by the Owner Trustee for the benefit of the Noteholders from
time to time of the Notes and the Note Trustee of all the covenants, agreements
and provisions contained herein and in the Notes, in each case for the uses and
purposes and subject to the terms and provisions hereof:
GRANTING CLAUSE:
The Owner Trustee hereby grants, conveys, assigns, transfers, mortgages and
pledges to the Note Trustee, to the extent that it constitutes real property,
and, to the extent that it does not constitute real property, grants, conveys,
assigns, transfers, mortgages, pledges to and creates a security interest in
favor of the Note Trustee in, the following described property, rights and
privileges, whether now owned or held or hereafter acquired (herein called the
"Note Indenture Estate"), to wit:
(a) all right, title and interest of the Owner Trustee, now existing or
hereafter arising, in and to (i) the Lease, (ii) the Mortgage and (iii) the
Option to Lease, and all sums now or hereafter payable to the Owner Trustee
with respect thereto, including, without limitation, (A) all amounts of Rent,
payments pursuant to Article 22 of the Lease, insurance proceeds and
condemnation, requisition and other awards and payments of any kind for or
with respect to any part of the Note Indenture Estate as contemplated herein
or by the Granting Clause Documents (the foregoing sums, excluding all
Excepted Payments, being hereinafter referred to as the "Assigned Payments")
and (B) all rights (exclusive of Excepted Rights) of the Owner Trustee, now
existing or hereafter arising, to exercise any election or option or to
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<PAGE> 9
make any decision or determination or to give or receive any notice, consent,
waiver or approval or to take any other action under or in respect of any
Granting Clause Document, as well as all rights, powers and remedies on the
part of the Owner Trustee, now existing or hereafter arising and whether
arising under any Granting Clause Document or by statute or at law or equity
or otherwise, arising out of any Event of Default;
(b) all monies and securities now or at any time hereafter paid to or
deposited with or required to be paid to or deposited with the Note Trustee
pursuant to any provision of this Note Indenture or any Granting Clause
Document and held or required to be held by the Note Trustee hereunder;
(c) all rents (including Rent, but excluding Excepted Payments), issues,
profits, products, revenues and other income of all property from time to
time subjected to the lien and security interest of the Mortgage or this Note
Indenture, and all right, title and interest of every nature whatsoever of
the Owner Trustee, now existing or hereafter arising, in and to the same and
every part thereof;
(d) all other property of every kind and description, real, personal and
mixed, and all interests therein, now owned or hereafter acquired by the
Owner Trustee pursuant to the provisions of the Granting Clause Documents
(including, without limitation, all Improvements and Personalty and all
alterations, additions and additional buildings and structures on the Demised
Premises, title to which has vested in the Owner Trustee pursuant to Article
11 of the Lease) and the Note Trustee is hereby authorized to receive any
such property and to hold and apply any and all such property subject to and
in accordance with the terms of this Note Indenture as then supplemented; and
(e) all proceeds of any of the foregoing.
BUT EXCLUDING, HOWEVER, from the Note Indenture Estate any and all Excepted
Payments (including all rights with respect to such Excepted Payments of the
Person entitled thereto) and the following Excepted Rights:
(aa) Except during the period that the Note Trustee is entitled to exercise
rights and powers and pursue remedies as provided in Article 8 hereof, the
Owner Trustee at all times shall retain, to the exclusion of the Note
Trustee, all rights of the Owner Trustee now existing or hereafter arising,
to exercise any election or option or to make any decision or determination
or to give or receive any notice,
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<PAGE> 10
consent, waiver or approval or to take any other action under or in respect
of the Granting Clause Documents or under the Option to Lease (each of such
rights shall be retained by the Owner Trustee until such time as the Note
Trustee has commenced foreclosure proceedings on an affected Property), as
well as all rights, powers and remedies on the part of the Owner Trustee,
whether arising under the Granting Clause Documents or by statute or at law
or in equity or otherwise, arising out of any Default or Event of Default
hereunder, subject, however, to Article 11 hereof; provided, however, except
insofar as the same relates to Excepted Payments to which the Owner Trustee
or the Owner Participant is entitled, the Owner Trustee shall not, without
the prior written consent of the Note Trustee, agree to any amendment to, or
any waiver, discharge or termination of, or grant any consent under, any term
or provision of (i) Articles 1 [Demised Premises], 2 [Term] (if the result
thereof would be to shorten the term of the Lease to a period shorter than
the period ending with the latest maturity of any series of Notes), 3 [Basic
and Additional Rent] (if the result thereof would be that the Basic Rent
payable thereunder would be insufficient to pay principal or interest on the
Notes as the same become due and payable or that the Additional Rent payable
thereunder would be insufficient to pay any premium on the Notes or this Note
Indenture, Trustee Expenses or any other sums payable as Additional Rent to
which the Noteholders would be entitled as the same become due and payable),
[3A [ground lease provisions]], 4 [Net Lease], 5 [Economic Abandonment]
(if the result thereof would be to adversely affect or delay or decrease the
amount of any prepayment of the Notes, including, without limitation, by
permitting termination of the Lease earlier than the tenth anniversary of the
commencement of the Base Term), 7 [Real Estate Taxes], 8 [Liability
Insurance], 10 [Repairs and Maintenance], 11 [Alterations and Additional
Construction] (to the extent of Kmart's performance of obligations as lessee
in Section (c) thereof), 12 [Utilities], 13 [Governmental Regulations], 15
[Insurance; Damage to Demised Premises], 16 [Eminent Domain], 17 [Insurance
Proceeds, Claims Settlement], 18 [Use, Assignment and Subletting], 20
[Ingress and Egress; Liens], 21 [Tenant Defaults], 22 [Landlord Remedies], 23
[Bankruptcy], 26 [Remedies Cumulative], 27 [Estoppel Letters], 28 [Condition
of Premises at Termination] (to the extent set forth in Section (b) thereof),
30 [Notice of Environmental Matters], 31 [Entry by Landlord], 39 [Hazardous
Materials], 40 [Private Company Financial Status], 41 [Tenant's Purchase
Offer], 42 [Property Substitution], 43 [Landlord's Right to Cure Tenant's
Defaults], and 44 [No Merger of Title], of the Lease, except that consents
and waivers which would not have an adverse
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<PAGE> 11
effect on the repayment of the Notes or result in a material diminution of the
value of the Demised Premises may be granted or agreed to by the Owner Trustee
under Articles 3A, 7, 8, 10, 15, 16, 17, 18, 28, 31, 41, 42, 43 and 44 without
the prior written consent of the Note Trustee; and (ii) the definitions
contained therein, to the extent that any amendment results in a substantive
change to any of the foregoing provisions; and provided further that the Owner
Trustee shall not, without the prior written consent of the Note Trustee,
terminate the Lease, except as provided by clause (bb) below.
(bb) During the period in which the Note Trustee is entitled to exercise
rights and powers and pursue remedies as provided in Article 8 of this Note
Indenture as the result of an Event of Default hereunder caused by a Lease
Event of Default, the Owner Trustee at all times shall be entitled on a
nonexclusive basis with the Note Trustee to (i) enforce any covenant or
obligation (including obligations in respect of the payment of Rent) of Kmart
under the Lease, provided that in so enforcing any such covenant, the Owner
Trustee may not exercise any remedies under Article 22 of the Lease; and (ii)
receive any notice under the Granting Clause Documents, provided that any
amount obtained by the Owner Trustee as a consequence of any of the above
actions which is payable to the Note Trustee or any Noteholder or to which
the Note Trustee is entitled shall (apart from Excepted Payments) be received
by the Owner Trustee for the benefit of, and immediately paid over to, the
Note Trustee. Anything contained in this Note Indenture to the contrary
notwithstanding, in the event that there arises any conflict between actions
taken by the Owner Trustee and the Note Trustee with respect to the Granting
Clause Documents, other than with respect to Excepted Rights and Excepted
Payments hereunder, the actions taken by the Note Trustee shall be
controlling.
(cc) Subject to subparagraph (aa) above, but otherwise without the consent
of any of the Noteholders, at any time and from time to time, the respective
parties to the Operative Documents may modify, amend or supplement any of
such Operative Documents (other than this Note Indenture or any Supplemental
Indenture delivered on the date hereof or delivered pursuant to Article 11
hereof) for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions thereof or modifying in any manner the
rights of the respective parties thereunder or may give any consent or waiver
thereunder; provided, however, that no such modification, amendment,
supplement, consent or waiver shall without the consent of each Noteholder
affected thereby, modify, amend or supplement, or
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<PAGE> 12
give any consent in respect of or waive any provision of, the Lease in such
manner (i) so as to reduce the amounts payable by Kmart under the Lease, or
change the time for the payment thereof, so that such payments are less than
the amounts necessary to pay the principal of, premium, if any, and interest
on the Outstanding Notes when due (whether at maturity, upon acceleration or
otherwise) or (ii) as would release Kmart from its obligation in respect of
payment of Basic Rent or Termination Value or any other amount payable under
the Lease and intended to be used to pay the principal of, premium, if any,
or interest on the Notes, in any manner inconsistent with clause (i) above.
Notwithstanding anything to the contrary herein (including the Articles set
forth below), neither the Note Trustee nor the Owner Trustee may modify,
amend, supplement, consent to, or acquiesce in any modification of any
Operative Document that would constitute an exchange of any Note for another
obligation for federal income tax purposes unless (i) the modification,
amendment, supplementation, consent, or acquiescence would not result in a
"significant modification" under Treasury Regulations section 1.860G-2(b) or
(ii) all Noteholders that would be affected by such an exchange have
consented thereto.
Provided, however, that so long as no Event of Default shall have occurred
and be continuing, the Owner Trustee shall be entitled to quiet enjoyment of
the Demised Premises as contemplated by the Operative Documents without
hinderance or disturbance by the Note Trustee.
TO HAVE AND TO HOLD all the Note Indenture Estate unto the Note Trustee, its
respective successors and assigns FOREVER. The lien and security interest
created hereby is created for the ratable benefit and security of the
Noteholders of the Outstanding Notes from time to time without any priority of
any one Note or series of Notes over any other except as herein otherwise
expressly provided, and for the uses and purposes and subject to the terms and
conditions set forth in this Note Indenture.
PROVIDED, HOWEVER, that if the principal of, premium, if any, and interest
on the Notes, and all other amounts payable hereunder or secured hereby shall
have been paid pursuant to Section 3.1 hereof or otherwise and the Owner
Trustee shall have performed and complied with all the covenants, agreements,
terms and provisions hereof, then this Note Indenture and the rights hereby
granted and assigned shall terminate.
IT IS HEREBY COVENANTED AND AGREED that all the Notes are to be issued and
delivered, and that all property, rights and
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<PAGE> 13
privileges subject or to become subject hereto, are to be held subject to the
further covenants, conditions, uses and trusts herein set forth, and the Owner
Trustee, intending to be legally bound hereby, hereby covenants and agrees with
the Note Trustee for itself and for the equal and proportionate benefit and
security of the holders of the Notes Outstanding from time to time, and the
Note Trustee agrees to accept the trusts and duties herein set forth, as
follows:
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<PAGE> 14
ARTICLE 1
PROVISIONS
OF GENERAL APPLICATION
SECTION 1.1 Definitions. Unless the context shall otherwise require, each
of the capitalized terms used in this Note Indenture and not otherwise defined
in this Note Indenture shall have the meaning assigned to it in Appendix A, and
the rules of usage set forth in Appendix A hereto shall apply thereto. As used
in this Note Indenture, the term "parties" means, collectively, the Owner
Trustee and the Note Trustee. Unless otherwise indicated, references in this
Note Indenture to articles, sections, paragraphs, clauses, appendices,
schedules and exhibits are to the same contained in or attached to this Note
Indenture.
SECTION 1.2 Compliance Certificates and Opinions. Every request or
application by the Owner Trustee for action by the Note Trustee shall be
accompanied by an Officer's Certificate of the Owner Trustee stating in each
case that in the opinion of the Person making such certificate the conditions
precedent, if any, to such action provided for in this Note Indenture
(including any covenants compliance with which constitutes a condition
precedent) have been complied with.
SECTION 1.3 Form of Documents Delivered to Note Trustee. In any case where
several matters are required to be certified or covered by any specified
Person, it is not necessary that all such matters be certified or covered by
only one document, but one such Person may certify with respect to some matters
and one or more other such Persons as to other matters, and any such Person may
certify as to such matters in one or several documents.
Any certificate of an officer of the Owner Trustee may be based, insofar as
it relates to legal matters, upon an opinion of counsel, unless such officer
actually knows that the certificate or opinion or representations with respect
to the matters upon which his or her certificate or opinion is based are
erroneous. Any such opinion may be based, insofar as it relates to factual
matters, upon a certificate of, or representations by, an officer or officers
of the Owner Trustee stating that the information with respect to such factual
matters is in possession of the Owner Trustee, unless such counsel actually
knows that the certificate or opinion or representations with respect to such
matters are erroneous.
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<PAGE> 15
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Note Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 1.4 Acts of Noteholders; Record Dates. (a) Any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Note Indenture to be given or taken by Noteholders may be embodied in and
evidenced by one or more instruments of substantially similar tenor, signed by
such Noteholders in person or by an agent duly appointed in writing and, except
as otherwise expressly provided herein, such action shall become effective when
such instrument or instruments are delivered to the Note Trustee and, where it
is hereby expressly required, to the Owner Trustee and Kmart. Such instrument
or instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Noteholders signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Note Indenture and (subject to Section 9.1 hereof) conclusive in favor of the
Note Trustee and the Owner Trustee, if made in the manner provided in this
Section 1.4.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved (i) by the certificate of any notary public
or other officer of any jurisdiction authorized to take acknowledgments of
deeds or administer oaths that the Person executing such instrument
acknowledged to him the execution thereof, (ii) by a notarized affidavit of a
witness to such execution or (iii) by having the signature guaranteed by an
Eligible Guarantor Institution as that term is defined in Rule 17Ad-15 under
the Exchange Act, and where such execution is by an officer of a corporation,
limited- liability company or association or a member of a partnership on
behalf of such corporation, limited-liability company, association or
partnership, such certificate or affidavit shall also constitute sufficient
proof of his or her authority. The fact and date of the execution of any such
instrument or writing, or the authority of the Person executing the same, may
also be proved in any such manner which the Note Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) The Owner Trustee may fix any date as the record date for purposes of
determining the Noteholders entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other action, or to vote
on any action,
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<PAGE> 16
authorized or permitted to be given or taken by Noteholders, which date shall
be no more than 60 days before the first solicitation of a Noteholder made by
any Person with respect to any such action. If not set by the Owner Trustee
prior to the first solicitation of a Noteholder made by any Person with respect
to any such action, or, in the case of any such vote, prior to such vote, the
record date for any such action or vote shall be the 30th day (or, if later,
the date of the most recent list of Noteholders required to be provided
pursuant to Section 10.1 hereof) prior to the first solicitation or vote, as
the case may be. With regard to any record date, only the Noteholders on such
date (or their duly designated proxies) shall be entitled to give or take or
vote on the relevant action.
(e) Any request, demand, authorization, direction, notice, consent, waiver
or other action by any Noteholder shall bind every other holder of a Note
issued upon the transfer thereof or in exchange therefor or in lieu thereof,
whether or not notation of such action is made upon such Note.
(f) Without limiting the foregoing, a Noteholder entitled hereunder to
give or to take any such action with regard to any particular Note may do so
with regard to all or any part of the principal amount of such Note or by one
or more duly appointed agents each of whom may do so pursuant to such
appointment with regard to all or any different part of such principal amount.
SECTION 1.5 Requests, etc., to Note Trustee, Kmart, Owner Trustee and Owner
Participant. Any request, demand, authorization, direction, notice, consent,
waiver or Act of Noteholders or other document provided for or permitted by
this Note Indenture to be made upon, given or furnished to, or filed with the
following Persons, shall be sufficient if in writing and delivered in person or
by courier or mailed, first- class postage prepaid (in the absence of a mail
strike or other disruption of the mail) or transmitted by means of telecopy or
other wire transmission (with request for assurance of receipt in a manner
typical with respect to communications of that type):
if to the Note Trustee, at:
The Bank of New York
101 Barclay, 22W
New York, New York 10286
Telecopier: 212-815-4135
Attention: Mortgage Backed and Select Securities Group
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if to the Owner Trustee, at:
[Shawmut Bank Connecticut, National Association
777 Main Street
Hartford, Connecticut 06115
Telecopier: 203-240-7920
Attention: Corporate Trust Administration]
[Society National Bank
3 Seagate, 3rd Floor
Toledo, Ohio 43604]
if to Kmart, at:
Kmart Corporation
3100 West Big Beaver Road,
Troy, Michigan 48084
Telecopier: 313-643-2689
if to the Owner Participant, at its address set forth in the Purchase Agreement
or to any of the above Persons at any other address or telecopy number
subsequently furnished in writing by it to each of the other Persons listed
above. Either party hereto providing any request, demand, authorization,
direction, notice, consent, report, certificate, opinion or other document to
the other party hereto shall also send the foregoing to the other parties named
above in accordance with the foregoing provisions.
SECTION 1.6 Notices to Noteholders; Waiver. Where this Note Indenture
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed first-class postage prepaid, to each Noteholder, at its address as
it appears in the Note Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice.
Where this Note Indenture provides for notice in any manner, such notice may be
waived in writing by the Person entitled to receive such notice, either before
or after the event, and such waiver shall be the equivalent of such notice.
Waivers of notice by Noteholders shall be filed with the Note Trustee, but such
filing shall not be a condition precedent to the validity of any action taken
in reliance upon such waiver. In any case where notice to Noteholders is given
by mail, neither the failure to mail such notice, nor any defect in any notice
so mailed, to any particular Noteholder shall affect the sufficiency of such
notice with respect to other Noteholders, and any notice
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which is mailed in the manner herein provided shall be conclusively presumed to
have been duly given.
SECTION 1.7 Effect of Headings and Table of Contents. The Article and
Section headings herein and the Table of Contents are for convenience of
reference only and shall not affect the construction hereof.
SECTION 1.8 Successors and Assigns. All covenants, agreements,
representations and warranties in this Note Indenture by the Note Trustee and
the Owner Trustee shall bind and, to the extent permitted hereby, shall inure
to the benefit of and be enforceable by their respective successors and
assigns, whether so expressed or not.
SECTION 1.9 Separability Clause. In case any provision in this Note
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 1.10 Benefits of Note Indenture. Nothing in this Note Indenture or
in the Notes, express or implied, shall give to any Person, other than the
parties hereto and their successors and assigns hereunder, the Owner
Participant and its successors and permitted assigns and the Noteholders, any
benefit or any legal or equitable right, remedy or claim under this Note
Indenture.
SECTION 1.11 Governing Law. THIS NOTE INDENTURE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REFERENCE TO THE CHOICE-OF-LAW DOCTRINE OF SUCH STATE.
SECTION 1.12 Counterparts. This Note Indenture may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one and the same instrument.
SECTION 1.13 Legal Holidays. In any case where any Payment Date,
Redemption Date or Stated Maturity of any Note shall not be a Business Day,
then, notwithstanding any other provision of this Note Indenture, payment of
interest, principal, and premium, if any, need not be made on such date, and if
not made on such date shall instead be made on the next succeeding Business Day
with the same force and effect as if made on the Payment Date, Redemption Date
or at Stated Maturity, and, provided that such payment is so made on such next
succeeding Business Day, no interest shall accrue for the period from and after
such Payment Date, Redemption Date or Stated Maturity Date to and including
such next succeeding Business Day.
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SECTION 1.14 No Recourse Against Others. No director, officer, manager,
employee, member or stockholder, as such, of Kmart, FGHK, Inc., FGHK, Ltd., A
Wyoming Limited Liability Company, the Owner Trustee or the Owner Participant,
as the case may be, or any Affiliate of the foregoing shall have any liability
for any obligations of the Owner Trustee under this Note Indenture or for any
claim based on, or in respect of or by reason of such obligations or their
creation. Each Noteholder by accepting a Note waives and releases all such
liability. Such waiver and release are part of the consideration for the issue
of the Notes.
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ARTICLE 2
THE NOTES
SECTION 2.1 Issuable in Series; Designations. The Notes shall be issuable
hereunder in one or more series and with such designations as are specified in
Section 2.2 hereof. Subject to Section 2.13 hereof, the aggregate principal
amount of the Notes that may be authenticated and delivered under this Note
Indenture is limited to the aggregate sum of $________________ except for Notes
authenticated and delivered upon transfer of, or in exchange for, or in lieu
of, other Notes pursuant to Section 2.6 or Section 2.7 hereof. The aggregate
principal amount of the Series A Note is limited to the sum of $___________;
the aggregate principal amount of the Series B Note is limited to the sum of
$___________; and the aggregate principal amount of the Series C Note is
limited to the sum of $___________.
SECTION 2.2 Form and Denomination. The form of the Series A Note, Series B
Note and Series C Note shall be substantially as set forth in Exhibits A, B and
C, respectively. Each Note shall be dated the date of its authentication.
Each Note shall be numbered, lettered or otherwise distinguished in such manner
or in accordance with such plans as the officers of the Owner Trustee executing
the same may determine with the approval of the Note Trustee.
Each Note may be issued with appropriate insertions, omissions,
substitutions or variations, and may have imprinted or otherwise reproduced
thereon such legend or legends, not inconsistent with the provisions of this
Note Indenture, as may be required to comply with any law or with any rules or
regulations pursuant thereto, or with the rules of any securities market in
which the Note of such series is admitted to trading, or to conform to general
usage.
The Series A Note, Series B Note and Series C Note shall each be issued only
as a single note in registered form in the denominations of $________,
$________ and $________, respectively.
SECTION 2.3 Equally and Ratably Secured Notes. All Outstanding Notes shall
be equally and ratably secured by this Note Indenture, without preference,
priority or distinction on account of the date or dates or the actual time or
times of the issue or Stated Maturity of such Notes, so that all Outstanding
Notes shall have the same right, lien and preference under and by virtue of
this Note Indenture.
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SECTION 2.4 Execution of Notes. The Notes shall be executed on behalf of
the Owner Trustee by any of its authorized officers and attested by any of its
authorized officers but the same officer shall not execute and attest the same
Note. The signature of any of such authorized officers on the Notes may be
manual or facsimile.
Notes bearing the manual or facsimile signatures of individuals who were at
any time the proper officers of the Owner Trustee shall bind the Owner Trustee,
notwithstanding that any of such individuals have ceased to hold such offices
prior to the authentication and delivery of such Notes or did not hold such
offices at the date of execution of this Note Indenture.
SECTION 2.5 [Reserved].
SECTION 2.6 Registration, Registration of Transfer and Exchange. The Note
Trustee shall, on behalf of the Owner Trustee, cause to be kept at the Note
Trustee Office a register in which, subject to such reasonable regulations as
the Note Trustee may prescribe, the Owner Trustee shall provide for the
registration of Notes and of transfers and exchanges of Notes. This register
is sometimes referred to herein as the "Note Register".
Upon surrender for registration of transfer of any Note at the Note Trustee
Office, the Owner Trustee shall execute and the Note Trustee shall register,
authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Notes of the same series with the same interest
rate and Stated Maturity as the Note so surrendered with a like aggregate
principal amount, in any authorized denominations and bearing numbers not
contemporaneously outstanding.
Any holder of record on the date hereof of an Interim Note shall surrender
such Interim Note to the Note Trustee immediately upon the execution of this
Note Indenture at the location so designated in Exhibit P hereto. Any holder
of a Series X Note so surrendered shall receive in exchange a Series A Note
with a like principal amount. Any holder of a Series Y Note so surrendered
shall receive in exchange a Series B Note with a like principal amount. Any
holder of a Series Z Note so surrendered shall receive in exchange a Series C
Note with a like principal amount. Immediately upon the Note Trustee's receipt
of the Interim Notes, the Owner Trustee shall execute, and the Note Trustee
shall authenticate and deliver the appropriate Notes to the holders entitled to
receive such Notes pursuant to this paragraph.
At the option of any Noteholder, Notes may be exchanged for an equal
aggregate principal amount of Notes of the same
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series with the same interest rate and Stated Maturity as the Notes so to be
exchanged and in any authorized denominations, upon surrender of the Notes to
be exchanged at the Note Trustee Office. Whenever any Notes are so surrendered
for exchange, the Owner Trustee shall execute, and the Note Trustee shall
authenticate and deliver, the Notes which the Noteholder making the exchange is
entitled to receive.
All Notes issued upon registration of transfer or exchange of Notes shall be
the valid obligations of the Owner Trustee, evidencing the same debt, and
entitled to the same security and benefits under this Note Indenture, as the
Notes surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or exchange
shall be duly endorsed, or be accompanied by a written instrument of transfer
in form satisfactory to the Note Trustee duly executed by the Noteholder
thereof or his or her attorney thereunto duly authorized in writing.
No service charge shall be required of any Noteholder with respect to any
transfer or exchange of Notes, but the Note Trustee may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Notes.
The Owner Trustee shall not be required to issue and the Note Trustee shall
not be required to register the transfer of or exchange (a) any Note of any
series during a period beginning at the opening of business 15 days before the
date of the first mailing of a notice of redemption of Notes of such series and
ending at the close of business on the day of first mailing of such notice or
(b) any Note selected for redemption in whole or in part except the unredeemed
portion of any Note selected for redemption in part.
SECTION 2.7 Mutilated, Destroyed, Lost and Stolen Notes. Upon receipt by
the Owner Trustee and the Note Trustee of evidence satisfactory to them of the
theft, loss, destruction or mutilation of any Outstanding Note and (in the case
of any such theft, loss or destruction) of indemnity satisfactory to them, and
upon surrender and cancellation of such Note, if mutilated, the Owner Trustee
shall execute, and the Note Trustee shall thereupon authenticate and deliver, a
new Note of like tenor and of the same series with the same interest rate and
Stated Maturity in lieu of such stolen, lost, destroyed or mutilated Note, or
if any such Note shall have matured or be about to mature, instead of issuing a
substituted Note the Owner Trustee may pay the same without surrender thereof.
Any indemnity bond shall name as obligees the Owner Trustee and the Note
Trustee.
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SECTION 2.8 Payment of Interest and Principal. Interest on the Notes shall
be calculated on the basis of a 360-day year consisting of 12 months of 30 days
each and shall be payable at the rates set forth on the face of each Note on
each Payment Date as set forth in the Notes.
Subject to Section 1.13 and Articles 6 and 7 hereof, the principal of the
Notes shall be payable on such dates and in such amounts as provided in the
Notes. Principal of, premium, if any, and interest on the Notes shall be
payable to the Noteholders of such Notes at the Note Trustee Office in
immediately available funds in such coin or currency of the United States of
America as, at the respective times of payment, shall be legal tender for the
payment of public and private debts. Notwithstanding the foregoing sentence or
any provision in any Note to the contrary, if so requested by the holder of any
Note, by written notice to the Note Trustee, received by the Note Trustee at
least five days prior to the day scheduled for payment, all amounts (other than
the final payment) payable with respect to such obligation shall be paid by
crediting the amount to be distributed to such holder to an account maintained
by such holder with the Note Trustee or by the Note Trustee's transferring such
amount by wire, with such wire transfer to be initiated by such time as to
permit, to the extent practicable, oral confirmation thereof (specifying the
wire number) to be given no later than 12:00 noon, New York City time on the
date scheduled for payment, but only to the extent of funds held by the Note
Trustee and available for such wire-transfer, to such other bank in the United
States having wire-transfer facilities, including a Federal Reserve Bank, as
shall have been specified in such notice, for credit to the account of such
holder maintained at such bank, any such credit or transfer pursuant to this
Section 2.8 to be in immediately available funds, without any presentment or
surrender of such Note. Final payment of any such Note shall be made only
against surrender of such Note to the Note Trustee at the Note Trustee Office.
Subject to the foregoing provisions of this Section 2.8, each Note delivered
under this Note Indenture upon registration of transfer of or in exchange for
or in replacement of any other Note shall carry the rights to interest accrued
and unpaid, and to accrue interest, that were carried by such other Note, and
each such Note shall bear interest from whatever date shall be necessary so
that neither gain nor loss in interest shall result from such registration of
transfer, exchange or replacement.
SECTION 2.9 Persons Deemed Owners. Except as provided for in the last
sentence of Section 2.8 hereof, prior to due presentment for registration of
transfer, the Person in whose name any Note is registered on the Note Register
shall be deemed
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to be the absolute owner of such Note for the purpose of receiving payment of
principal of, premium, if any, and (subject to Section 2.8 hereof) interest on
such Note and for all other purposes whatsoever, whether or not such Note be
overdue, regardless of any notice to anyone to the contrary.
SECTION 2.10 Cancellation. All Notes surrendered for payment or redemption
in whole, or registration of transfer or exchange shall, if surrendered to any
Person other than the Note Trustee, be delivered to the Note Trustee for
cancellation. The Owner Trustee may at any time deliver to the Note Trustee
for cancellation any Notes previously authenticated and delivered hereunder
that the Owner Trustee may have acquired in any manner whatsoever and all Notes
so delivered shall be promptly canceled by the Note Trustee. No Notes shall be
authenticated in lieu of or in exchange for any Notes canceled as provided in
this Section 2.10, except as expressly permitted by this Note Indenture. All
canceled Notes held by the Note Trustee shall be held or disposed of by the
Note Trustee in accordance with its standard retention or disposal policy as is
in effect at the time unless the Owner Trustee shall direct, by Owner Trustee
Request, that they be returned to it, provided that such Owner Trustee Request
is timely and the Notes have not been previously disposed of by the Note
Trustee in the absence of such request and in accordance with the foregoing
policy.
SECTION 2.11 Authentication, Execution, Delivery and Dating of Notes.
Unless otherwise specifically provided with respect to any Note, Notes shall be
dated as of the date of their authentication. No Note shall be secured by or
entitled to any benefit under this Note Indenture or be valid or obligatory for
any purpose unless there appears on such Note a certificate of authentication
in the form provided for in the Notes, executed by the Note Trustee by the
manual or facsimile signature of one of its authorized officers or signatories,
and such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder.
SECTION 2.12 Source of Payments; Rights and Liabilities of Owner Trustee;
Owner Participant Not Liable. All payments of principal of, premium, if any,
and interest on the Notes, and any other amounts due with respect to the Notes,
shall be made only from assets subject to or intended to be subject to the lien
of this Note Indenture and the income and proceeds received by the Note Trustee
therefrom and all payments of principal, premium, if any, and interest on, and
any other amounts due with respect to the Notes, shall be made in accordance
with the terms of Section 2.8 and Article 4 hereof. The Note Trustee agrees,
and each Noteholder, by its acceptance of a Note, shall be deemed to agree (a)
that they will look
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solely to the assets subject to or intended to be subject to the lien of this
Note Indenture and the income and proceeds received by the Note Trustee
therefrom to the extent available for distribution to such Noteholder as herein
provided and (b) that neither the Owner Participant nor, except as otherwise
expressly provided herein, the Owner Trustee in its individual capacity, is
liable to any Noteholder or to the Note Trustee for any amounts payable under
any Note or this Note Indenture.
Anything herein to the contrary notwithstanding, except as set forth in the
following provision: (a) all and each of the representations, warranties,
covenants and agreements herein made on the part of the Owner Trustee are made
and intended not as personal representations, warranties, covenants and
agreements by the Owner Trustee in its individual capacity or for the purpose
or with the intention of binding it personally but are made and intended for
the purpose of binding only the Note Indenture Estate, and this Note Indenture
and the Notes are executed and delivered by the Owner Trustee solely in the
exercise of the powers expressly conferred upon it as trustee under the Trust
Agreement; and (b) no personal liability or responsibility is assumed hereunder
or under the Notes by or shall at any time be enforceable against the Owner
Trustee in its individual capacity or the Owner Participant on account of any
representation, warranty, covenant or agreement hereunder of the Owner Trustee,
either express or implied, all such personal liability, if any, being expressly
waived by the Note Trustee and (by its acceptance of a Note) deemed to have
been waived by each Noteholder and by all Persons claiming by, through or under
such Noteholder; provided, however, that the Owner Trustee in its individual
capacity shall be liable hereunder (a) for the inaccuracy of any representation
or warranty on the part of the Owner Trustee made in its individual capacity
contained in Section 6B of the Purchase Agreement and (b) for its own willful
misconduct or gross negligence. If a successor Owner Trustee is appointed in
accordance with the terms of the Trust Agreement, such successor Owner Trustee
shall, without any further act, succeed to all the rights, duties, immunities
and obligations hereunder, and its predecessor Owner Trustee and the Owner
Trustee in its individual capacity shall be released from all further duties
and obligations hereunder and under each other Operative Document, without
prejudice to any claims against the Owner Trustee in its individual capacity or
as the Owner Trustee for any default by the Owner Trustee in its individual
capacity or as the Owner Trustee, respectively, in the performance of its
obligations hereunder and under the other Operative Documents to which it is a
party prior to such appointment or for any inaccuracies in warranties, willful
misconduct or gross negligence during their terms.
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SECTION 2.13 Legends. Unless sold pursuant to an effective registration
statement under the Securities Act, all Notes issued hereunder shall bear the
following legend:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
Prior to any transfer of any Note bearing such legend, in whole or in part
(other than pursuant to an effective registration statement under the
Securities Act, or a sale or other disposition made pursuant to Rule 144 or
144A (or any successor rules) of the Securities Act), except for the pledge of
any such Note to the Bond Trustee or in connection with the foreclosure and
acquisition of any such Note by the Bond Trustee after an event of default
under the Bond Indenture, the Noteholder shall furnish, at the expense of such
Noteholder, to the Owner Trustee, Kmart and the Note Trustee an Opinion of
Counsel, which shall be reasonably satisfactory in form and substance to such
parties, to the effect that such transfer is exempt from registration under the
Securities Act.
ARTICLE 3
SATISFACTION AND DISCHARGE
SECTION 3.1 Satisfaction and Discharge of Note Indenture. If at any time
(a) the principal of, premium, if any, and interest on all of the Notes shall
have been paid, (b) all of the Notes theretofore authenticated (other than any
such Notes which shall have been replaced or paid as provided in Section 2.7
hereof) shall have been delivered to the Note Trustee for cancellation or (c)
subject to the following paragraph, there shall have been irrevocably deposited
with or at the direction of the Note Trustee as trust funds in the form of (A)
cash (other than monies repaid by the Note Trustee to the Owner Trustee in
accordance with Section 5.2) sufficient to pay, or (B) direct obligations of
the United States of America, backed by its full faith and credit and maturing
as to principal, premium, if any, and interest in such amounts and at such
times as will ensure the availability of cash sufficient to pay, at the Stated
Maturity and on the dates of all Sinking Fund Payments, if any, with respect
thereto, or upon redemption thereof (the Owner Trustee hereby agreeing that it
will in such case deliver to the Note Trustee, at the time such cash or
obligations are deposited, an Owner Trustee Request irrevocably specifying any
such Redemption Date or Dates), and (without duplication) on each date on which
any payment of interest shall be due and payable thereon, the full amount of
the principal of, premium, if any, and interest on
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all Outstanding Notes of such series on the date of such deposit and if, with
respect to such series of Notes, all other sums payable hereunder and under
such Notes to the Noteholders shall have been paid (or are held by the Note
Trustee for payment, in the case of unsurrendered Notes or checks that
Noteholders have not cashed), then the liens and security interests created by
this Note Indenture shall cease to secure any obligations with respect to the
Notes and the terms and conditions set forth in this Note Indenture shall no
longer apply to the Notes (except, in the case of clause (c), as to (i) rights
of registration of transfer and exchange, (ii) rights for the substitution of
mutilated, destroyed, lost or stolen Notes, (iii) rights of Noteholders to
receive payments of principal of, premium, if any, and interest on the
Outstanding Notes upon the Sinking Fund payment date and Stated Maturity
thereof or upon such Redemption Date or Dates, as the case may be, (iv) rights,
obligations and immunities of the Note Trustee hereunder, (v) rights of
Noteholders under this Article 3 and (vi) the right, in the case of such Notes
for which a Redemption Date has not been specified, of the Owner Trustee to
redeem such Notes pursuant to Article VI), and the Note Trustee, upon an Owner
Trustee Request and upon delivery to the Note Trustee of an Officer's
Certificate of the Owner Trustee and an Opinion of Counsel for the Owner
Trustee, each stating that all conditions precedent to the satisfaction and
discharge of this Note Indenture, with respect to the Notes, have been complied
with, shall execute proper instruments acknowledging that the liens and
security interests created by this Note Indenture shall cease to secure the
obligations under the Notes and the terms and conditions set forth in this Note
Indenture shall no longer apply to the Notes (except with respect to deposits
made with the Note Trustee pursuant to clauses (A) and (B) above and except as
otherwise provided in this Article 3) with respect to the Notes.
The liens and security interests of this Note Indenture shall not be
released pursuant to clause (c) of the foregoing paragraph (a "Defeasance
Release") unless the Note Trustee shall have received an opinion of counsel to
the effect that the Defeasance Release will not cause any Note to lose its
status as a "qualified mortgage" within the meaning of section 860G(a)(3) of
the Code.
If this Note Indenture is released and the Notes will not become due and
payable at Stated Maturity or upon redemption (pursuant to a notice of
redemption duly given to the Noteholders) within 60 days from the date of
deposit pursuant to this Section 3.1, the Note Trustee shall, as soon as
practicable after the date of such deposit and not more than 60 days or less
than 30 days before each date of Stated Maturity or Redemption Date, mail
notice by first-class mail, postage prepaid, to the Noteholders at their last
addresses as they shall appear upon the
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Note Register, stating that the deposit required by this Section 3.1 has been
made with or at the direction of the Note Trustee and that such Notes are no
longer entitled to the benefits of and security provided by this Note Indenture
except with respect to the cash and direct obligations deposited with the Note
Trustee and except as otherwise provided in this Article 3 and stating the
Stated Maturity or Redemption Date or Dates upon which monies are to be
available for the payment of the principal of, premium, if any, and interest on
such Notes.
SECTION 3.2 Application of Deposited Money. All monies and obligations
deposited with the Note Trustee pursuant to Section 3.1 shall be held in trust
and applied by it, in accordance with the provisions of this Note Indenture, to
the payment to the Noteholders of the particular Notes for the payment or
redemption of which such monies and obligations have been deposited with the
Note Trustee of all sums due or to become due thereon for principal, premium,
if any, and interest. The Note Trustee shall promptly pay or return to the
Owner Trustee upon request of the Owner Trustee any cash or direct obligations
held by it at any time that are not required for the payment of the amounts
described above for which cash has been deposited pursuant to Section 3.1
hereof.
SECTION 3.3 Assignment of Right to Receive Rent. (a) To the extent that
any installment of Basic Rent, Additional Rent or any other monies are received
by the Bond Trustee pursuant to the Assignment Agreement, such monies shall be
deemed to be received by the Note Trustee in accordance with this Note
Indenture.
(b) The obligations of the Note Trustee to apply payments of principal,
interest or premium on the Notes and the obligations of the Owner Trustee to
make such payments on the Notes shall both be deemed satisfied and discharged
to the extent of monies received by the Bond Trustee as Rent or otherwise
pursuant to this Note Indenture or the Assignment Agreement (other than
Excepted Payments) and to the extent such monies would be available to make
payments on the Notes if such monies were applied pursuant to Article 4 hereof
(and regardless of whether such monies are in fact so applied).
ARTICLE 4
RECEIPT, DISTRIBUTION AND APPLICATION OF
INCOME AND PROCEEDS FROM THE NOTE INDENTURE ESTATE
SECTION 4.1 Basic Rent; Interest on Overdue Installments of Basic Rent.
(a) Except as otherwise provided in Section 4.3 or 4.7 hereof, each
installment of Basic Rent and any payment of Additional Rent representing
interest on overdue
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installments of Basic Rent or in respect of interest due under Section 2.8
received by the Note Trustee shall be promptly distributed by the Note Trustee
or applied pursuant to the Assignment Agreement on the Payment Date such
payment is due under the Lease (or as soon thereafter as such payment shall be
received by the Note Trustee) in the following order of priority:
first, so much of such aggregate amount as shall be required to pay in full
the interest then due on, principal of and premium, if any, on all
Outstanding Notes shall be distributed to the Persons entitled thereto and in
case such aggregate amount shall be insufficient to pay in full the whole
amount so due and unpaid, then to the payment of such interest then due,
principal and premium, if any, in that order, without any preference or
priority of one such Note over another, a pro rata share based on the ratio of
the aggregate unpaid interest then due, principal thereof, and premium, if
any, on the applicable Note to the aggregate of interest then due, principal
thereof, and premium, if any, of all Notes then outstanding on such date of
distribution; and
second, the balance, if any, of such installment or payment remaining
thereafter shall be distributed to the Owner Trustee or as the Owner Trustee
may direct.
Subject to Sections 4.2, 4.3 and 4.7 hereof, if, as a result of any failure by
Kmart to pay in full any installment of Basic Rent when due (or within any
applicable period of grace) or for any other reason, there shall not have been
distributed pursuant to this Section 4.1 hereof on any date (or within any
applicable period of grace) the full amount then distributable pursuant to
clause "first" of this Section 4.1, the Note Trustee shall distribute or apply
other payments of the character referred to in Section 4.4 (other than payments
representing Additional Rent regarding indemnity payments and any other
Excepted Payments) or 4.5 hereof then held by it or thereafter received by it,
except as otherwise provided in Section 4.3 hereof, to the Noteholders to the
extent necessary to make all the distributions then due pursuant to clause
"first" of this Section 4.1(a); provided, however, that, to the extent any
distribution or application is made from such amounts held pursuant to Section
4.4 or 4.5 hereof and the payment of Basic Rent or Additional Rent in respect
of which such distribution or application was made, is subsequently made, such
payment of Basic Rent or Additional Rent, unless an Event of Default shall have
then occurred and be continuing, shall be applied to the purpose for which such
amount held pursuant to Section 4.4 or 4.5 hereof had been held, subject, in
all cases, to the provisions of Sections 4.4 and 4.5 hereof. The portion of
each such installment or payment made to the Note Trustee that is to be
distributed or applied by the Note Trustee
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in payment of Notes shall be applied in accordance with this Section 4.1(a).
Any payment received by the Note Trustee pursuant to the first sentence of
Section 8.10(a)(i) hereof shall be distributed to the Noteholders in the order
of priority set forth in clause "first" of this Section 4.1.
(b) Subject to Sections 4.2, 4.3 and 4.7 hereof, if, at the time of
receipt by the Note Trustee of any installment of Basic Rent (whether or not
then overdue) or Additional Rent constituting interest on overdue Basic Rent
(but not Excepted Payments), there shall have occurred and be continuing an
Event of Default, then the Note Trustee shall retain such payments (to the
extent the Note Trustee is not then required to distribute such amount pursuant
to clause "first" of Section 4.1(a) hereof, as part of the Note Indenture
Estate and shall not distribute any such payments pursuant to clause "second"
of Section 4.1(a) hereof, until the earliest of (i) the first day occurring
more than 180 days following (A) in the case of an Event of Default under
Section 8.1(a) hereof, the date of the occurrence of such Event of Default
(after giving effect to the grace period set forth therein) and (B) in the case
of any other Event of Default, the date on which the Note Trustee shall have
received notice of such Event of Default (after giving effect to any applicable
grace period), in which case such retained payment shall be distributed
pursuant to clause "second" of Section 4.1(a) hereof, (ii) such time as the
Notes shall have been declared, or shall have become, due and payable pursuant
to Section 8.2 hereof, in which case such retained payment shall be distributed
pursuant to Section 4.3 hereof and (iii) such time as such Event of Default
shall no longer be continuing or have been cured or waived, in which case such
retained payment shall be distributed pursuant to clause "second" of Section
4.1(a) hereof; provided, however, that following an Event of Default and the
lapse of 180 days during which period the Note Trustee failed to accelerate the
Notes, such Event of Default shall not thereafter be the basis of a retention
of any Basic Rent or Additional Rent payment hereunder whether then held or
subsequently received by the Note Trustee.
SECTION 4.2 Amounts Received as Result of Event of Loss; Partial
Condemnation, or Exercise of Option to Terminate. (a) Except as otherwise
provided in Sections 4.3 and 4.7 hereof, any amounts received by the Note
Trustee that are to be paid pursuant to Section 6.1(b)(i) or Section 6.1(b)(ii)
hereof (excluding amounts to be paid with respect to Article 22 of the Lease
which are to be distributed or applied pursuant to Section 4.3 hereof) will be
distributed pursuant to Section 4.1 hereof.
(b) Any Noteholder's Excess Proceeds received by the Note Trustee in
connection with a redemption pursuant to Section 6.1(b)(iii) hereof shall be
distributed or applied pursuant to
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clause "first" of Section 4.1 hereof; and any Lessor's Excess Proceeds will be
distributed pursuant to clause "second" of Section 4.1 hereof.
(c) Notwithstanding the foregoing clauses (a) and (b), all amounts received
by the Note Trustee in its capacity as Proceeds Trustee (as defined in the
Lease) will be held in a separate account, pursuant to Article 17 of the Lease
and disbursed pursuant to the Lease. Amounts retained as excess proceeds by
the Note Trustee, as Proceeds Trustee, pursuant to Article 16 of the Lease,
will be distributed pursuant to clause (b) above.
SECTION 4.3 Amounts Received After, or Held at Time of, Event of Default.
Except as otherwise provided in Section 4.7 hereof, all payments received and
amounts held or realized by the Note Trustee in respect of the Note Indenture
Estate (including any amounts realized by the Note Trustee from the exercise of
any remedies pursuant to the Lease) after an Event of Default shall have
occurred and be continuing, as well as all payments thereafter received or
amounts then held by the Note Trustee as part of the Note Indenture Estate,
shall be distributed or applied by the Note Trustee promptly on the day such
payment is received in the following order of priority:
first, so much of such payments or amounts as shall be required to pay the
Note Trustee all amounts then due to it pursuant to Article 9 hereof shall be
applied to pay the Note Trustee such amounts;
second, so much of such payments or amounts remaining as shall be required
to pay in full the principal of, premium, if any, and interest thereon to the
date of distribution shall be applied ratably to the payment of such
principal, premium, if any, and interest; and in case such aggregate amount
shall be insufficient to pay in full the whole amount so due and unpaid, then
to the payment of such principal of, premium, if any, and interest without
priority of one over another, ratably according to the aggregate unpaid
principal thereof, premium, if any, and interest on all Notes held by each
such Noteholder bears to the aggregate unpaid principal thereof, premium, if
any, and interest thereon to the date of distribution; and
third, the balance, if any, of such payments or amounts remaining thereafter
shall be distributed to the Owner Trustee or as the Owner Trustee may direct.
SECTION 4.4 Amounts Received for which Provision Is Made in an Operative
Document. Except as otherwise provided in Section 4.1, 4.2, 4.3 or 4.7 hereof,
any payments received by the
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Note Trustee in respect of the Note Indenture Estate for which provision as to
the application thereof is made in an Operative Document shall be applied
forthwith to the purpose for which such payment was made in accordance with the
terms of such Operative Document.
SECTION 4.5 Amounts Received for which No Provision Is Made. Except as
otherwise provided in Section 4.1, 4.2, 4.3 or 4.7 hereof, any payments
received and any amounts realized by the Note Trustee in respect of the Note
Indenture Estate for which no provision as to the application thereof is made
in an Operative Document or elsewhere in this Article 4 shall be held by the
Note Trustee as part of the Note Indenture Estate, and, to the extent the same
are received or realized at any time after payment in full of the principal of,
premium, if any, and interest on all of the Notes and all other amounts owing
to the Noteholders hereunder, such payments and amounts, together with any
other amounts remaining as part of the Note Indenture Estate after payment in
full of the principal of, premium, if any, and interest on all of the Notes and
all other amounts owing to the Noteholders hereunder, shall be distributed by
the Note Trustee in the order of priority set forth in clause "second" of
Section 4.1(a) hereof.
SECTION 4.6 Payments to Owner Trustee. Unless otherwise directed by the
Owner Trustee, all payments to be made to the Owner Trustee hereunder shall be
made to the Owner Trustee by wire transfer of immediately available funds as
soon as practicable but in any event prior to 11:00 a.m., New York City time,
on the date of receipt (except that such payment may be made on the next
succeeding Business Day, if the Note Trustee has received such funds on or
after 11:00 a.m., New York City time, on such date of receipt), to such account
at such bank or trust company as the Owner Trustee shall from time to time
designate in writing to the Note Trustee.
SECTION 4.7 Excepted Payments. Anything in this Article 4 or elsewhere in
this Note Indenture to the contrary notwithstanding, any Excepted Payment
received at any time by the Note Trustee shall be distributed as promptly as
practicable to the Person entitled to receive such Excepted Payment.
ARTICLE 5
COVENANTS
SECTION 5.1 Payment of Principal, Premium, if any, and Interest. (a)
Subject to Section 2.12 hereof, the Owner Trustee will duly and punctually pay
the principal of, premium, if any, and interest on and any other amounts due
under the Notes and
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hereunder in accordance with, and subject to, the terms of the Notes and this
Note Indenture. Except as otherwise expressly provided for herein, each
payment of a Note shall be made without demand therefor or, except for a final
payment in full, without presentation of the Note and shall be delivered to the
address specified by the Noteholders by wire transfer of lawful money of the
United States.
(b) The obligations of the Owner Trustee to make payments of principal,
interest or premium on the Notes shall be deemed satisfied and discharged to
the extent of monies received by the Bond Trustee as Rent or otherwise pursuant
to this Note Indenture or the Assignment Agreement (other than Excepted
Payments) and to the extent such monies would be available to make payments on
the Notes if such monies were applied pursuant to Article 4 hereof (and
regardless of whether such monies are in fact so applied).
SECTION 5.2 Money for Note Payments To Be Held in Trust. All monies
deposited with the Note Trustee for the purpose of paying the principal of,
premium, if any, or interest on the Notes shall be deposited and held in trust
for the benefit of the Noteholders entitled to such principal, premium or
interest, subject to the provisions of this Section 5.2.
Any money deposited with the Note Trustee in trust for the payment of the
principal of, premium, if any, or interest on any Note and remaining unclaimed
for two years and 11 months (or such lesser period as may be required by law to
give effect to this provision) after such principal, premium or interest has
become due and payable shall be paid to the Owner Trustee; and the Noteholder
of such Note shall thereafter, as an unsecured general creditor, look solely to
the Owner Trustee to the extent such monies shall have been paid to the Owner
Trustee, for payment thereof, and all liability of the Note Trustee with
respect to such trust money shall thereupon cease; provided, however, that the
Note Trustee, before being required to make any such payment, may, at the
expense of the Owner Trustee, cause to be mailed to each such Noteholder notice
that such money remains unclaimed and that, after a date specified therein,
which date shall not be less than 30 days from the date of such mailing, any
unclaimed balance of such money then remaining will be paid to the Owner
Trustee.
SECTION 5.3 Maintenance of Office or Agency. The Note Trustee will
maintain an office where Notes may be presented or surrendered for payment,
where Notes may be surrendered for registration of transfer or exchange and
where notices and demands to or upon the Note Trustee in respect of Notes and
this Note Indenture may be served. The Note Trustee will give prompt
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written notice to the Owner Trustee of the location, and of any change in the
location, of each such office.
SECTION 5.4 Title; Further Assurances; Recording. (a) THE OWNER TRUSTEE,
IN ITS INDIVIDUAL CAPACITY AND AS OWNER TRUSTEE, MAKES (I) NO REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE (EXCEPT AS SET FORTH HEREIN),
VALUE, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY, ABSENCE OF LATENT DEFECTS, FREEDOM FROM PATENT OR TRADEMARK
INFRINGEMENT OR FITNESS FOR USE OF THE DEMISED PREMISES (OR ANY PART THEREOF)
OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE DEMISED PREMISES (OR ANY PART THEREOF) except that the Owner
Trustee in its individual capacity represents and warrants that on the Closing
Date, the Note Indenture Estate shall be free of any Lessor's Lien attributable
to it in its individual capacity and (ii) no representation or warranty as to
the validity, sufficiency, legality or enforceability of any Operative
Document, or as to the correctness of any statement contained therein except,
in the case of the Owner Trustee, to the extent that any such statement in any
Operative Document was or is expressly made by the Owner Trustee in its
individual capacity, and except that the Owner Trustee hereby represents and
warrants (A) in its individual capacity (1) that it has the requisite corporate
power and authority to execute and deliver the Operative Documents to which it
is a party and that such Operative Documents have been, and the Notes, upon
execution and delivery, will have been, duly executed and delivered by one or
more of the Authorized Officers of the Owner Trustee and (2) that its
performance of all transactions contemplated herein or therein has been duly
authorized by all necessary corporate action and (B) in its capacity as Owner
Trustee that at the time of its execution of this Note Indenture, the title to
the Note Indenture Estate and the Property (as defined in the Mortgage) has not
been modified, impaired or changed from the state in which it was initially
delivered to the Owner Trustee (except for the lien of the Mortgage) and that
each of the agreements to which the Owner Trustee is a party is a valid,
binding and enforceable obligation of the Owner Trustee.
(b) No transfer, by operation of law or otherwise, of any Note or other
right, title or interest of the Owner Participant or of any Noteholder in and
to the Note Indenture Estate or hereunder shall operate to terminate this Note
Indenture or the trusts hereunder or entitle any successor or transferee of the
Owner Participant or of such Noteholder to any accounting or to the transfer to
it of legal title to any part of the Note Indenture Estate, other than as set
forth in this Note Indenture, and such restriction shall run with the Land and
survive any termination of this Note Indenture in violation thereof.
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SECTION 5.5 Termination of Trust Agreement and Transfer of Interest. The
Owner Trustee shall not act to terminate or amend in a manner adverse to the
interests of the Noteholders or permit the termination or amendment adverse to
the interests of the Noteholders of the Trust Agreement or the trust thereunder
before the date that the Notes and all other sums payable hereunder to the
Noteholders have been paid in full pursuant to Section 3.1 hereof, except with
the written consent of the Note Trustee. Except as permitted by the Operative
Documents, without the prior written consent of the Note Trustee, the Owner
Trustee shall not transfer any interest in the Demised Premises, either legal
or equitable, until the Notes have been paid in full in accordance with this
Note Indenture and all other sums payable hereunder and under the Notes have
been paid except that the Owner Trustee may transfer any such interest to a
successor Owner Trustee as provided herein.
SECTION 5.6 Notice of Default. The Owner Trustee will deliver to the Note
Trustee and Kmart, promptly after an Authorized Officer has obtained actual
knowledge thereof, written notice of any event which with the giving of notice
or lapse of time, or both, would become an Event of Default.
SECTION 5.7 Discharge of Liens, etc. (a) The Owner Trustee, in its
individual capacity, agrees that it shall not, directly or indirectly, create,
incur or suffer to exist any Lessor's Liens attributable to it in its
individual capacity, and will, at its own cost and expense, promptly take such
action as may be necessary duly to discharge any such Lessor's Liens.
(b) Except as expressly permitted by the terms of the Operative Documents,
the Owner Trustee will not contract for, create, incur, assume or suffer to
exist any debt, and will not guarantee (directly or indirectly or by an
instrument having the effect of assuring another's payment or performance of
any obligation or capability of so doing, or otherwise), endorse (other than
endorsements for collection in the ordinary course of business) or otherwise be
or become contingently liable, directly or indirectly, in respect of the debt
of any other Person.
(c) The Owner Trustee will not enter into any business or activity other
than the business of owning the Demised Premises and leasing the Demised
Premises and the carrying out of the transactions contemplated by the Operative
Documents and other activities necessary or appropriate to the maintenance of
its existence and the performance of its obligations under the Operative
Documents, as amended from time to time as permitted by the Granting Clause
hereof.
SECTION 5.8 Affirmative Covenants. So long as any Note remains Outstanding,
the Owner Trustee shall:
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(a) perform its obligations under each of the Operative Documents
applicable to it;
(b) upon request of the Note Trustee and within 120 days after the end of
each calendar year, furnish the Note Trustee and each Noteholder with an
Officer's Certificate, stating that to the best of the signer's knowledge,
the Owner Trustee is not in default in the performance or observance of any
of the terms of this Note Indenture, or if the Owner Trustee shall be in
default to his or her knowledge, specifying all such defaults, and the nature
thereof, and the steps being taken to remedy the same; and
(c) at any time and from time to time, upon the reasonable request of the
Note Trustee, the Owner Trustee shall promptly and duly execute and deliver
any and all such further instruments and documents as may be reasonably
specified in such request and as are necessary or desirable to perfect,
preserve or protect the liens and assignments created or intended to be
created hereby, or to obtain for the Note Trustee the full benefit of the
specific rights and powers granted herein, including, without limitation, the
execution and delivery of Uniform Commercial Code financing statements and
continuation statements with respect thereto, or similar instruments relating
to the perfection of the liens or assignments created or intended to be
created hereby.
(d) In the event of a termination of the Lease upon the rejection by
the Owner Trustee of a Tenant Purchase Offer pursuant to Section 41(c) of the
Lease or the retention of the Demised Premise by the Owner Trustee pursuant to
Section 5(e)(ii) of the Lease, the Owner Trustee shall on the Termination Date
deposit with or at the direction of the Note Trustee cash or cash equivalents
in an amount equal to the Redemption Price for the Notes to be redeemed
pursuant to Section 6.1 hereof, including any Make-Whole Premium, if any.
ARTICLE 6
REDEMPTION OF NOTES
SECTION 6.1 Applicability of Article. (a) Redemption of Notes, as
required by any provision of this Note Indenture, shall be made in accordance
with such provision, Article 4, this Article 6 and Article 7 hereof.
(b) (i) Upon the termination of the Lease due to the occurrence of an
Event of Loss, each Outstanding Note shall be redeemed in whole at a Redemption
Price equal to the unpaid outstanding principal amount thereof, without
premium, together with accrued and unpaid interest thereon to, but excluding,
the applicable Redemption Date.
(ii) Upon termination of the Lease pursuant to Article 5, 18 or 22
thereof, each Outstanding Note shall be redeemed in whole at a Redemption Price
equal to the unpaid principal amount thereof together with accrued but unpaid
interest thereon to, but not including, the applicable Redemption Date, plus
the Make-Whole Premium.
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(iii) Upon the occurrence of a Partial Loss,
Outstanding Notes in an aggregate principal amount equal to the
Noteholder's Excess Proceeds Amount shall be redeemed at a
Redemption Price equal to the lesser of the Noteholder's
Excess Proceeds Amount and the aggregate unpaid Outstanding
principal amount thereof, without premium, together with accrued
and unpaid interest thereon to but excluding the applicable
Redemption Date.
(iv) Upon the giving of the notice of redemption
contemplated by Section 6.4 and subject to Section 6.5 hereof,
the principal amount of the Notes to be redeemed, premium, if
any, and interest thereon to the Redemption Date specified in
such notice shall become due and payable on such Redemption Date
as provided in Section 6.6 hereof.
SECTION 6.2 Notice to Note Trustee of Redemption. In
case of any election by the Owner Trustee to redeem Notes, other
than through the operation of the Sinking Fund, the Owner Trustee
shall, at least 60 days prior to the scheduled Redemption Date
(unless a shorter notice shall be satisfactory to the Note
Trustee), notify the Note Trustee in writing of such Redemption
Date and the principal amount of the Notes to be redeemed.
SECTION 6.3 Notes To Be Redeemed Pro Rata. In the
case of a redemption of less than all of the amounts owed under
the Notes, the Notes shall be redeemed on a pro rata basis
without preference or priority of any Note over any other Note.
SECTION 6.4 Notice of Redemption. Notice of
redemption of Notes (other than through the operation of the
Sinking Fund), shall be given by the Note Trustee by first-class
mail, postage prepaid, mailed not less than 30 days prior to the
Redemption Date, to each Noteholder of a Note to be redeemed, at
its address appearing on the Note Register.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) if less than all the Outstanding Notes of any
series are to be redeemed, the identification (and in the
case of partial redemption, the principal amounts) of the
particular Notes to be redeemed,
(d) that on the Redemption Date, and upon the
satisfaction of each such condition, the Redemption Price
will become due and payable on the Notes or portions thereof
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to be redeemed and that interest thereon will cease to
accrue on and after such date, and
(e) the place where such Notes are to be surrendered,
with respect to a redemption in whole, for payment of the
Redemption Price.
Notice of redemption of Notes to be redeemed shall be
given by the Note Trustee in the name of the Owner Trustee.
SECTION 6.5 Deposit of Redemption Price. On or prior
to any Redemption Date, the Owner Trustee shall deposit, or cause
to be deposited, with the Note Trustee an amount of money
sufficient to pay the Redemption Price of all of the Notes that
are to be redeemed on that date.
SECTION 6.6 Notes Payable on Redemption Date. Notice
of redemption having been given as aforesaid, the Notes to be
redeemed shall, on the Redemption Date, become due and payable at
the Note Trustee Office at the Redemption Price therein
specified, and from and after such date (unless there shall be a
default in the payment of the Redemption Price), such Notes shall
cease to bear interest. Upon surrender of such Notes for
redemption in accordance with such notice, such Notes shall be
paid at the Redemption Price, exclusive, however, of installments
of interest maturing on or prior to the Redemption Date payment
of which shall have been made or duly provided for to the
Noteholders registered as such on the relevant Record Dates, or
otherwise, according to the terms and the provisions of
Section 2.8 hereof.
If any Note to be redeemed shall not be so paid on the
Redemption Date thereof because the Note Trustee shall not have
received pursuant to Section 6.5 an amount of money sufficient to
pay the Redemption Price for such Note, the principal and
premium, if any, and (to the extent permitted by Applicable Law)
interest shall, until paid, continue to bear interest from the
Redemption Date at the Delinquent Rate.
SECTION 6.7 Notes Redeemed In Part. Any Note which is
to be redeemed only in part pursuant to the provisions of this
Article other than through the operation of the Sinking Fund
shall be surrendered at the Note Trustee Office (with, if the
Note Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Note Trustee
duly executed by, the Noteholder thereof or such Noteholder's
attorney duly authorized in writing), and the Owner Trustee shall
execute, and the Note Trustee shall authenticate and deliver to
the Noteholder of such Note without service charge, a new Note or
Notes of the same series, of any authorized denomination as
requested by such Noteholder, in aggregate principal amount equal
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to and in exchange for the unredeemed portion of the principal of
the Note so surrendered.
ARTICLE 7
SINKING FUND
SECTION 7.1 Sinking Fund for Notes. (a) On each
Sinking Fund payment date specified in the Notes, to the extent
Basic Rent is received from Kmart, the Note Trustee shall
distribute an amount in immediately available funds sufficient to
redeem on such date the principal amount of each series of Notes
required to be redeemed on such date in accordance with a
schedule attached to each such Note, at 100% of the principal
amount thereof together with accrued interest to the Redemption
Date, but exclusive of installments of interest maturing on or
prior to such date payment of which shall be made or duly
provided for to the Noteholders of such Notes on the relevant
Record Dates or otherwise as provided in Section 2.8 hereof.
(b) In the event that there shall have been any
partial redemption of Notes of any series (other than pursuant to
the Sinking Fund), the schedule of Sinking Fund payments attached
to each such Note shall be revised by the Owner Trustee, which
schedule shall provide for the amortization of the unpaid
principal balance of such Note for the remaining term to its
stated maturity at the interest rate provided in such Note, after
taking into account the amount paid in partial redemption of such
Note on the related Redemption Date, and such revised schedule
shall be delivered to the Note Trustee. The Note Trustee on
behalf of the Owner Trustee will mail a copy of the revised
schedule of Sinking Fund payments to each Noteholder.
(c) The Notes of each series redeemed through the
operation of the Sinking Fund shall be redeemed on a pro rata
basis.
ARTICLE 8
EVENTS OF DEFAULT; REMEDIES
SECTION 8.1 Events of Default. The term "Event of
Default" shall mean any of the following events:
(a) non-payment of any payment of interest accrued on
any of the Notes or any Sinking Fund Payment on any of
the Notes within five days after notice to the Owner Trustee
and Kmart that the same is due; or of other sums that the
Owner Trustee is obligated to pay hereunder, but
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excluding any Excepted Payments, within 15 days after notice
to the Owner Trustee and Kmart that the same are due;
(b) a Lease Event of Default shall have occurred and
be continuing (other than any such Lease Event of Default
arising by reason of nonpayment of, or failure to perform
with respect to, any Excepted Payment when due); provided
that the Note Trustee or Noteholders owning not less than a
Majority in Interest have given to the Owner Trustee, by
registered or certified mail, a written notice stating the
Note Trustee's or such Noteholders' intention to terminate
the Lease, commence action to foreclose on the Demised
Premises or exercise any other comparable remedies under the
Lease at least 30 days prior to the exercise thereof;
(c) the Owner Trust shall commence a voluntary case or
other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter
in effect, or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of
it or any substantial part of its property, or it shall
consent to any such relief or to the appointment of or
taking of possession by any such official in any involuntary
case or other proceeding commenced against it, or it shall
make a general assignment for the benefit of creditors;
(d) a decree or order for relief shall be entered by a
court having jurisdiction over the Owner Trust in any
involuntary case under any bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a
trustee, receiver, liquidator, custodian or other similar
official of the Owner Trust, its interest in the Note
Indenture Estate or any substantial part of the Owner
Trust's property, or ordering the winding-up or liquidation
of the Owner Trust or its affairs, and such decree or order
shall remain undismissed or unstayed for a period of 90
consecutive days;
(e) default by the Owner Trustee in the due observance
or performance of any material term, covenant or condition
on its part to be performed under any of the Operative
Documents (other than a default under subsection (a) or
subsection (b) above), including any failure by the Owner
Trustee to comply in any material respect with any covenant
contained in subparagraph (aa), (bb) or (cc) of the granting
clause hereof, continued unremedied for a period of 30 days
after notice thereof from or on behalf of the Note Trustee
to the Owner Trustee, except that if any such default cannot
with due diligence be cured within a period of 30 days,
such default shall not be deemed to continue if
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such default is curable and the Owner Trustee
proceeds promptly and with all due diligence to cure the
default and diligently completes the curing thereof within
180 days; and
(f) any of the representations or warranties made by
the Owner Trustee in any of the Operative Documents is found
to be untrue in any material respect and any such breach
impairs the lien of this Note Indenture or has a material
adverse effect on the repayment of the Notes or results in a
material diminution of the value of the Note Indenture
Estate.
SECTION 8.2 Acceleration upon Notice; Rescission. (a)
During the continuance of any Event of Default and subject to the
provisions of Section 8.10 hereof, the Note Trustee, in its
discretion, may (or when so directed by a Majority in Interest of
Noteholders shall), or a Majority in Interest of the Noteholders
may, in any such case, by notice in writing to the Owner
Participant, the Owner Trustee and Kmart (and to the Note Trustee if
given by Noteholders), declare the principal of all the
Outstanding Notes and the interest accrued thereon to be due and
payable immediately, and thereupon the same shall become
immediately due and payable together, in the case of an Event of
Default which is a Lease Event of Default, with a Make-Whole
Premium on the principal amount then due, which amounts shall be
distributed in accordance with Section 4.3 hereof.
(b) At any time after such acceleration and before any
sale of the Note Indenture Estate, or any part thereof, shall
have been made pursuant to any sale as hereinafter in this
Article 8 provided, a Majority in Interest of the Noteholders
may, in their sole and absolute discretion, by Directive
delivered to the Owner Trustee, the Owner Participant and the
Note Trustee, rescind and annul such declaration and its
consequences if:
(i) there shall have been paid to or deposited with
the Note Trustee a sum sufficient to pay
(A) all overdue installments of interest on all
Notes,
(B) the principal of and premium, if any, on any
Notes which have become due otherwise than by such
acceleration and interest thereon at the respective
rates provided in the Notes for late payments of
principal or premium, and
(C) to the extent that payment of such interest
is lawful, interest upon overdue installments of
interest at the Delinquent Rate; and
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(D) all Events of Default, other than the non-
payment of the principal of Notes which have become due
solely by such acceleration, have been cured or waived
as provided in Section 8.9 hereof.
No such rescission shall affect any subsequent Event of Default
or impair any right consequent thereon.
SECTION 8.3 Enforcement of Remedies. (a) Subject to
Section 8.10 hereof and the limitations set forth in this Section
8.3(a), if an Event of Default that constitutes a Lease Event of
Default shall have occurred and be continuing, then in every such
case the Note Trustee, as assignee and mortgagee or secured party
hereunder or otherwise, may, to the extent permitted by
Applicable Law, exercise any or all of the rights and powers and
pursue any or all of the remedies under the Lease, the Mortgage,
this Note Indenture and the other Granting Clause Documents and,
in connection therewith, may take possession of all or part of
the Note Indenture Estate and may exclude the Owner Trustee and
Kmart (provided that a Lease Event of Default has occurred and is
continuing) and, to the extent permitted by Applicable Law, all
Persons claiming under either of them wholly or partly therefrom;
provided, however, that, notwithstanding any provision herein to
the contrary, the Note Trustee shall not exercise any remedies
against the Note Indenture Estate unless a declaration of
acceleration has been made pursuant to Section 8.2 hereof. Any
provision of the Lease, this Note Indenture or any other
Operative Document to the contrary notwithstanding, the Note
Trustee shall not foreclose the Lien of this Note Indenture or of
the Mortgage or otherwise exercise remedies that would result in
the exclusion of the Owner Trustee from the Note Indenture
Estate, the Demised Premises or any substantial part of either as
a result of any Event of Default that arises solely by reason of
one or more events or circumstances that constitute a Lease Event
of Default, unless the Note Trustee has taken or is concurrently
taking action under the Lease to dispossess Kmart, to terminate
the Lease or to effect any comparable remedy thereunder.
(b) Any provision of the Lease or this Note Indenture
to the contrary notwithstanding, if Kmart shall fail to pay any
Excepted Payment to any Person entitled thereto as and when due,
such Person shall have the right at all times, to the exclusion
of the Note Trustee, to demand, collect, sue for, enforce
performance of obligations relating to, or otherwise obtain all
amounts due in respect of, such Excepted Payment; provided,
however, that such Person shall not be entitled (i) to collect
such payment from or execute any judgment against or otherwise
cause the placing of a Lien upon any asset constituting a portion
of the Note Indenture Estate or (ii) to dispossess Kmart,
terminate the Lease or effect any comparable remedy.
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SECTION 8.4 Specific Remedies; Limitations on
Enforcement of Claims without Possession of Notes. Subject to
Sections 8.3, 8.4(f), 8.9 and 8.10 hereof and the provisions of
the Granting Clause Documents, upon the occurrence of any Event
of Default at any time thereafter so long as the same shall be
continuing:
(a) The Note Trustee may, and upon receipt of a
Directive of a Majority in Interest of Noteholders shall, in
order to enforce the rights of the Note Trustee and of the
Noteholders, (i) direct payment to it of all monies and
enforce any agreement or undertaking constituting a part of
the Note Indenture Estate by any action, suit, remedy or
proceeding authorized or permitted by this Note Indenture or
by law or by equity, and whether for the specific
performance of any agreement contained herein, or for an
injunction against the violation of any of the terms hereof,
or in aid of the exercise of any power granted hereby or by
Applicable Law, (ii) enforce the liens and security
interests (A) granted by this Note Indenture on all or any
part of the Note Indenture Estate and (A) on all collateral
securing the Notes by foreclosure, a sale or action on the
Notes or any other remedy available to it under Applicable
Law, subject to the rights of Kmart under the Lease, if any,
and (iii) sell, assign, transfer and deliver, from time to
time to the extent and in the manner permitted by Applicable
Law, all or any part of the Note Indenture Estate or any
interest therein, at one or more sales with or without
demand, advertisement or notice (except as herein required
or as may be required by Applicable Law) of the date, time
and place of sale and any adjournment thereof, for cash or
credit or other property, for immediate or future delivery
and for such price or prices and on such terms as the Note
Trustee, in its discretion, may determine, or as may be
required by Applicable Law, and, on any such sale or sales,
the Note Trustee is hereby appointed the true and lawful
attorney-in-fact of the Owner Trustee (which appointment is
irrevocable and coupled with an interest in the Notes), in
its name and stead or in the name of the Note Trustee, to
execute all deeds, bills of sale and instruments of
assignment and transfer, and to make all necessary
conveyances, assignments, transfers and deliveries; and the
receipt of the Note Trustee for the purchase money paid at
any such sale shall be a sufficient discharge therefor to
any purchaser of, the Note Indenture Estate or any part
thereof. It is agreed that 30 days' notice to the Owner
Participant, the Owner Trustee and Kmart of the date, time
and place of any proposed sale by the Note Trustee of all or
any part of the Note Indenture Estate or interest therein is
reasonable. The Note Trustee may file such proofs of claim
and other papers or documents as may be necessary or
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advisable in order to have the claims of the Note Trustee and of the
Noteholders asserted or upheld in any bankruptcy, receivership or other
judicial proceedings. To the extent that any portion of the Note
Indenture Estate constitutes fixtures or real property or an assignment
of real estate rents, the Note Trustee shall have, to the extent not
inconsistent with this Note Indenture, all the rights, remedies and
benefits of a mortgagee of real property and of a holder of an assignment
of rents from real property under Applicable Law. The Note Trustee and
any of the Noteholders may purchase at any of the foregoing sales and
may, if permitted by Applicable Law, make a credit bid in an amount of up
to the aggregate amount of all sums due under their respective Notes and
this Note Indenture (including, in the case of the Note Trustee, a credit
bid in an amount of up to the aggregate amount due with respect to all of
the Outstanding Notes).
(b) To the extent that the Note Indenture Estate
constitutes personal property, the Note Trustee may elect to
proceed as to both the real and personal property in
accordance with its rights and remedies in respect of the
real property. The sale or sales by the Note Trustee of
less than the whole of the Note Indenture Estate shall not
exhaust the remedies herein granted, and the Note Trustee is
specifically empowered to make a successive sale or sales
until the whole of the Note Indenture Estate shall be sold;
and if the proceeds of such sale or sales of less than the
entire Note Indenture Estate shall be less than the
aggregate of and the unpaid principal of, premium, if any,
and interest due on the Outstanding Notes and any other
indebtedness secured by this Note Indenture, this Note
Indenture and the lien, security interest and assignment
hereof shall remain in full force and effect as to the
unsold portion of the Note Indenture Estate just as though
no sale or sales had been made; provided, however, that the
Owner Trustee shall never have any right to require the sale
or sales of less than the whole of the Note Indenture
Estate.
(c) Without limiting the foregoing, the Note Trustee,
its assigns and its legal representatives, subject to the
rights of Kmart under the Lease, shall have as to such of
the Note Indenture Estate as is subject to the Uniform
Commercial Code or similar law in each relevant
jurisdiction, all the remedies of a secured party under the
Uniform Commercial Code or similar law in such jurisdiction
and such further remedies as from time to time may hereafter
be provided in such jurisdiction for a secured party.
(d) The Note Trustee may exercise any other right or
remedy that may be available to it under Applicable Law or
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proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof.
(e) The Note Trustee shall not be personally liable,
in the case of entry by it upon the Note Indenture Estate,
for debts contracted or liabilities or damages incurred in
the management or operation of the Note Indenture Estate.
(f) Notwithstanding any other provision contained
herein, so long as the Issuer is the registered holder of
any Note hereunder, the Note Trustee is not authorized or
empowered to enforce the liens and security interests of
this Note Indenture on all or any portion of the Note
Indenture Estate or to take any action with respect to all
or any portion of the Note Indenture Estate if such
enforcement or action would cause any of the REMICs (as
defined in the Bond Indenture) to fail to qualify as a "real
estate mortgage investment conduit" for federal income tax
purposes.
SECTION 8.5 Actions for Ratable Benefit of Noteholders.
All proofs of claim, rights of action and rights to assert claims
under this Note Indenture or under any of the Notes may be
enforced by the Note Trustee without the possession of any of the
Notes or the production thereof in any trial or other proceedings
relative thereto, and any such action or proceedings instituted
by the Note Trustee shall be brought in its own name as trustee
of an express trust, and any recovery of judgment shall, after
provision for the payment or reimbursement of the proper charges,
expenses or advances of the Note Trustee, be for the ratable
benefit of the Noteholders in respect of which such judgment has
been recovered.
SECTION 8.6 Noteholders May Demand Enforcement of
Rights by Note Trustee. Subject to Sections 8.3, 8.4(f), 8.9 and
8.10 hereof, if an Event of Default shall have occurred and shall
be continuing, the Note Trustee shall, upon the receipt of a
Directive from a Majority in Interest of Noteholders, proceed to
institute one or more suits, actions or proceedings at law, in
equity or otherwise, or take any other appropriate remedy, to
enforce payment of the principal of, or premium, if any, or
interest on the Notes or to foreclose this Note Indenture or to
sell or to cause to be sold the Note Indenture Estate under a
judgment or decree of a court or courts of competent jurisdiction
or under the power of sale herein granted, or take such other
appropriate legal, equitable or other remedy, as the Note
Trustee, being advised by counsel, shall deem most effectual to
protect and enforce any of the rights or powers of the Note
Trustee or the Noteholders, or, in case such Noteholders shall
have requested a specific method of enforcement permitted
hereunder, in the manner requested; provided that such action
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shall be in accordance with law and in accordance with the
provisions of this Note Indenture, and the Note Trustee shall
have the right to decline to follow any such request if the Note
Trustee in good faith shall determine that the suit, proceeding
or exercise of the other remedy so requested would involve the
Note Trustee in personal liability or expense.
SECTION 8.7 Control by Noteholders. A Majority in
Interest of Noteholders shall have the right to direct the time,
method and place of conducting any proceeding for any remedy
available to the Note Trustee or exercising any trust or power
conferred on the Note Trustee; provided that:
(a) such direction shall not be in conflict with any
rule of law or with the rights of the Owner Trustee under
this Note Indenture; and
(b) the Note Trustee may take any other action deemed
proper by the Note Trustee that is not inconsistent with
such direction.
SECTION 8.8 Noteholder May Not Bring Suit Except Under
Certain Conditions. Subject to Sections 8.3, 8.4(f), 8.9 and
8.10 hereof, a Noteholder shall not have the right to institute
any suit, action or proceeding at law or in equity or otherwise
for the foreclosure of this Note Indenture or for the enforcement
of any other remedy under or upon this Note Indenture, unless:
(a) such Noteholder previously shall have given
written notice to the Note Trustee of a continuing Event of
Default;
(b) the Note Trustee shall have received a Directive
from a Majority in Interest of Noteholders requesting that
it institute such action, suit or proceeding and, if
requested, shall have been offered indemnity as provided in
Section 9.1(e) hereof;
(c) the Note Trustee shall have refused or neglected
to institute any such action, suit or proceeding for 30 days
after receipt of such notice, request and offer of
indemnity; and
(d) no subsequent Directive from a Majority in
Interest of Noteholders inconsistent with the first such
Directive has been given to the Note Trustee during such 30-
day period.
It is understood and intended that no one or more of
the Noteholders shall have any right in any manner whatsoever
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hereunder or under the Notes (a) to surrender, impair, waive,
affect, disturb or prejudice the lien of this Note Indenture on
any property subject hereto or to the rights of the Noteholders
of any other Notes, (b) to obtain or seek to obtain priority over
or preference to any other such Noteholder or (c) to enforce any
right under this Note Indenture, except in the manner herein
provided and for the equal, ratable and common benefit of all of
the Noteholders of all series, subject to the provisions of this
Note Indenture.
SECTION 8.9 Waiver of Past Defaults. Upon receipt of a
Directive from a Majority in Interest of the Noteholders, the
Note Trustee shall waive any past Defaults and their consequences
and upon any such waiver such Defaults shall cease to exist, and
any Events of Default arising therefrom shall be deemed to have
been cured for every purpose of this Note Indenture, but no such
waiver shall extend to any subsequent or other Default or impair
any right consequent thereon; provided, however, that in the
absence of written instructions from the Noteholders of all Notes
then Outstanding, the Note Trustee shall not waive any Default in
the payment of the principal of, premium, if any, or interest on,
or other amounts due under, any Note then Outstanding, or in
respect of a covenant or provision hereof that, under Article 11
hereof, cannot be modified or amended without the consent of each
Noteholder.
SECTION 8.10 Right of Owner Trustee To Pay Interest,
Principal, etc.; Note Purchase. (a) (i) In the event of any
default by Kmart to pay in accordance with the Lease any
installment of Basic Rent, the Owner Trustee or the Owner
Participant, without the consent of the Note Trustee or any
Noteholder, may pay to the Note Trustee for application in
accordance with Section 4.1(a) hereof a sum equal to the amount
of all (but not less than all) principal and interest as shall
then be due and payable on the Notes, together with any interest
on account of such payment being overdue as provided in Article 4
hereof.
(ii) In the event of any default by Kmart in the
performance of any obligation under the Lease (other than the
obligation to pay Basic Rent) or any other Operative Document,
the Owner Trustee or the Owner Participant, without the consent
of the Note Trustee or any Noteholder, may exercise the Lessor's
rights under Article 43 of the Lease to perform such obligation
on behalf of Kmart.
(iii) Solely for the purpose of determining whether there
exists an Event of Default, payment by the Owner Trustee or the
Owner Participant pursuant to, and in compliance with, Section
8.10(a)(i) of the full amount then required to be paid thereunder
shall, for the purposes of this Note Indenture, be
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deemed to remedy any default by Kmart in the payment of
installments of Basic Rent theretofore due and payable and to
remedy any default by the Owner Trustee in the payment of any
amount due and payable under the Notes and any performance by
the Owner Trustee or the Owner Participant of any obligation of
Kmart under the Lease pursuant to, and in compliance with,
Section 8.10(a)(ii) hereof shall, for the purposes of this Note
Indenture, be deemed to remedy any default by Kmart in the
performance of such obligation and to remedy any related default
by the Owner Trustee under this Note Indenture.
(iv) Until 15 days after the Owner Trustee and the
Owner Participant shall have been given notice by the Note
Trustee or the Noteholders, if applicable, of the occurrence of
an Event of Default that may be cured under this Section 8.10(a),
the Note Trustee or the Noteholders, if applicable, shall not
exercise any rights as assignee of the Owner Trustee's rights
under the Lease or declare the Notes to be due and payable
pursuant to Section 8.2 hereof as a result of such Event of
Default.
(v) This Section 8.10(a) shall not apply to any
default by Kmart in the payment of any installment of Basic Rent
due under the Lease, if default by Kmart in the payment of three
or more consecutive installments of Basic Rent, or in the payment
of a total of six or more installments of Basic Rent, shall have
been cured by the Owner Trustee or the Owner Participant pursuant
to the foregoing provisions of this Section 8.10(a).
(vi) Upon the exercise of any cure right under this
Section 8.10(a), neither the Owner Trustee nor the Owner
Participant shall obtain any Lien on any part of the Note
Indenture Estate on account of any payment made or the costs and
expenses incurred in connection therewith nor shall any claim of
the Owner Trustee or the Owner Participant against Kmart or any
other Person for the repayment thereof impair the prior right and
security interest of the Note Trustee in and to the Note
Indenture Estate.
(b) (i) Upon the exercise of any cure right under
Section 8.10(a)(i) hereof, the Owner Trustee or the Owner
Participant, as the case may be, shall be subrogated to the
rights of the Noteholders to receive from the Note Trustee the
installment of Basic Rent with respect to which the Owner Trustee
or the Owner Participant effected such cure (including interest
on account of such installment being overdue) in the manner set
forth in Section 8.10(b)(ii) hereof; provided, however, that, so
long as any Event of Default has then occurred and is continuing
and subject to the release of funds provisions of Section 4.1(b)
hereof, the claim of the Owner Trustee or the Owner Participant,
as applicable, to reimbursement for such payment shall be
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subordinate in all respects to the payment in full of all amounts
due hereunder and under and pursuant to the Notes.
(ii) If the Note Trustee shall thereafter receive such
installment of Basic Rent from Kmart, then notwithstanding the
requirements of Section 4.1 hereof, the Note Trustee forthwith
shall remit such installment of Basic Rent to the Owner Trustee
or the Owner Participant, as the case may be, in reimbursement
for the funds so advanced by either of them; provided, however,
that, if any Event of Default shall have occurred and be
continuing, such installment of Basic Rent shall not be remitted
to the Owner Trustee or the Owner Participant but shall be held
by the Note Trustee as security for the obligations secured
hereby and distributed in accordance with Section 4.1(b) hereof,
as appropriate; and provided further that if the principal of and
interest on the Notes shall have become due and payable pursuant
to Section 8.2 hereof, such installment of Basic Rent shall be
distributed by the Note Trustee in accordance with Section 4.3
hereof.
(c) The Note Trustee for itself and for the Noteholders
agrees that if, after the occurrence of an Event of Default, the
Note Trustee or the Noteholders, as appropriate, intends either
to declare the Notes to be accelerated or to exercise other
substantial rights or remedies under this Note Indenture or under
the Lease, the Note Trustee or the Noteholders, as appropriate,
shall give notice of such intention to the Owner Trustee and the
Owner Participant at least 60 days prior to the making of such
declaration or the exercising of such right or remedy. No
declaration of acceleration by the Note Trustee or the
Noteholders shall be effective unless the Owner Trustee and the
Owner Participant are given at least 60 days' prior written
notice of their intention to make such declaration or
acceleration. Each Noteholder shall be deemed to agree by its
acceptance of its Note that if, within 45 days after the giving
of any such notice of intention by the Note Trustee or the
Noteholders, as the case may be, the Owner Trustee shall give
Notice to the Note Trustee of the Owner Trustee's intention to
purchase all of the Outstanding Notes in accordance with this
Section 8.10(c), accompanied by assurances reasonably
satisfactory to the Note Trustee of the Owner Trustee's ability
to purchase the Notes, then neither the Note Trustee nor the
Noteholders shall thereafter accelerate the Notes or exercise
other substantial rights or remedies under the Note Indenture or
under the Lease unless the Note Trustee shall not receive within
15 days after the giving of such notice by the Owner Trustee an
amount equal to the aggregate unpaid principal amount of any
unpaid Notes then outstanding, with any premium and penalty
applicable thereto (unless such Event of Default arises from a
Lease Event of Default set forth in Section 21(v) of the Lease),
together with accrued but unpaid interest thereon to the date of
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such receipt (as well as any interest on overdue principal and,
to the extent permitted by Applicable Law, overdue interest as
provided in Article 4 hereof) and any other amounts then due and
payable to each Noteholder hereunder. Upon payment to the Note
Trustee of such amount, each Noteholder will be deemed to sell,
assign, transfer and convey to the Owner Trustee (without
recourse or warranty of any kind other than of title to the Notes
so conveyed) all of the right, title and interest of such
Noteholder in and to the Note Indenture Estate, this Note
Indenture and all Notes held by such Noteholder. After the date
of payment of such amount to the Note Trustee, the Note Trustee
shall no longer treat the former Noteholders as the
"Noteholders", except for purposes of the Noteholders' right to
receive their respective portions of the amounts paid to the Note
Trustee as aforesaid, and on such date the Note Trustee shall
register the transfer of ownership of the Notes into the name of
the Owner Trustee.
SECTION 8.11 Right of Noteholders to Receive Payment Not
to Be Impaired. Anything in this Note Indenture to the contrary
notwithstanding, the right of any Noteholder to receive payment
of the principal of, premium, if any, and interest on such Note,
on or after the respective due dates expressed in such Note (or,
in case of redemption, on the Redemption Date fixed for such
Note, subject, however, in the case of a redemption pursuant to
Section 6.1(b)(ii) hereof, to Section 6.5(c) hereof), or to
institute suit for the enforcement of any such payment on or
after such respective dates, shall not be impaired or affected
without the consent of such Noteholder; provided, however, that
such Noteholder shall not have the right to institute any such
suit, if and to the extent that the institution or prosecution
thereof or the entry of judgment therein would, under Applicable
Law, result in the surrender, impairment, waiver or loss of the
Lien of the Note Indenture upon the Note Indenture Estate or any
part thereof.
SECTION 8.12 No Action Contrary to Lessee's Rights under
the Lease. Notwithstanding the granting clause hereof or any
other provision of this Note Indenture or any provision of any
other Operative Document, the Note Trustee warrants that, unless
an Event of Default shall have occurred and be continuing, the
Note Trustee shall not (a) name Kmart as party in any action or
procedures to foreclose the lien of this Note Indenture, unless
such joinder shall be required under Applicable Law, and in which
case the Note Trustee shall not seek affirmative relief from
Kmart in such action nor shall the Lease be cut off or terminated
nor Kmart's possession thereunder be disturbed in any such action
or proceeding and (b) subject to the next succeeding sentence of
this Section 8.12, the Note Trustee will recognize the Lease and
Kmart's rights thereunder. Upon any acquisition by the Note
Trustee or any purchaser at foreclosure or transferee
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pursuant to a plan of reorganization under Chapter 11 of the
Bankruptcy Code (collectively, a "Successor Landlord") of the
Owner Trustee's interest in the Lease, provided that Kmart is not
in default under the terms of the Lease, the Lease shall continue
as a direct Lease between the Successor Landlord and Kmart upon
all terms, covenants and conditions set forth in the Lease,
except that the Successor Landlord shall not (i) be liable for
any previous act or omission of the Owner Trustee under the
Lease, (ii) be subject to any offsets, claims, defenses or
counterclaims Kmart may have against the Owner Trustee or (iii)
be bound by any amendment to the Lease requiring the Note
Trustee's consent unless such consent was obtained.
SECTION 8.13 Waiver of Stay. To the extent it may
lawfully do so, the Owner Trustee, for itself and for any Person
who may claim through or under it, hereby:
(a) agrees that neither it nor any such Person will
set up, plead, claim or in any manner whatsoever take
advantage of, any Applicable Law now or hereafter in force
providing for any stay, moratorium, extension, appraisement,
valuation or redemption or any statute of limitations or any
rights to require a marshalling of assets which may delay,
prevent or otherwise hinder (i) the performance or
enforcement or foreclosure of this Note Indenture, (ii) the
sale of any of the Note Indenture Estate or (iii) the
putting of the purchaser or purchasers thereof into
possession of such property immediately after the sale
thereof;
(b) waives and releases all benefit or advantage of
such laws; and
(c) consents and agrees that all the Note Indenture
Estate may at any such sale be sold by the Note Trustee in
parcels or as an entirety.
SECTION 8.14 Right of Note Trustee To Perform Covenants,
etc. If the Owner Trustee shall fail to make any payment
required to be made or to perform any act required to be
performed by it hereunder or under the Lease, the Note Trustee,
without notice to or demand upon the Owner Trustee and without
waiving or releasing any obligation or default, may (but shall be
under no obligation to) at any time thereafter make such payment
or perform such act for the account and at the expense of the
Note Indenture Estate. All sums so paid by the Note Trustee and
all costs and expenses (including, without limitation, reasonable
fees and expenses of legal counsel and other professionals) so
incurred together with interest thereon from the date of payment
or occurrence, shall constitute additional indebtedness secured
by this Note Indenture and shall be paid from the Note Indenture
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Estate to the Note Trustee on demand. The Note Trustee shall not
be liable for any damages resulting from any such payment or
action unless such damages shall be a consequence of willful
misconduct or gross negligence on the part of the Note Trustee.
SECTION 8.15 Certain Other Rights of Owner Trustee. The
Note Trustee shall not modify, waive, amend or supplement any
Granting Clause Document (other than this Note Indenture) or
deliver any notices, consents, determinations, demands,
approvals, requests, directions or releases in respect of any
such other Granting Clause Document so as to release Kmart from
any of its obligations in respect of the payment of Basic Rent,
Additional Rent, Termination Value or any other payments in
respect of the Demised Premises as set forth in the Lease, or
reduce the amount of, or change the time or manner of payment of
or the absolute and unconditional character of, such payment
obligations of Kmart as set forth in any Granting Clause Document
or impose or create any obligation on the part of the Owner
Trustee or the Owner Participant under the Lease or extend or
shorten the duration of the Base Term or any Renewal Term of the
Lease; provided that adjustments to amounts payable in respect of
the Demised Premises under the Lease may be made in accordance
with Section 3(d) of the Lease at any time this Note Indenture is
in effect, at the times and in the manner contemplated by the
Lease. Nothing in this Section 8.15 shall prevent the Note
Trustee from exercising remedies in accordance with the Lease and
the Note Indenture so long as such exercise does not involve a
modification to a Granting Clause Document that has the effect
outlined above prior to such time as the Note Trustee shall be
entitled, pursuant to Section 8.3 hereof, to exercise remedies
that would result in the exclusion of the Owner Trustee from all
or any substantial part of the Note Indenture Estate.
SECTION 8.16 Restoration of Rights and Remedies. In
case the Note Trustee shall have instituted any proceeding to
enforce any right, power or remedy under this Note Indenture by
foreclosure, entry or otherwise, and such proceedings shall have
been discontinued or abandoned for any reason or shall have been
determined adversely to the Note Trustee, then and in every such
case, the Owner Trustee, the Owner Participant, the Note Trustee,
the Noteholders and Kmart shall be restored to their former
positions and rights hereunder with respect to the Note Indenture
Estate, and all rights, powers and remedies of the Note Trustee
shall continue as if no such proceedings had been taken.
SECTION 8.17 Rights and Remedies Cumulative. Each and
every right, power and remedy herein specifically given to the
Note Trustee under this Note Indenture shall be cumulative and
shall be in addition to every other right, power and remedy
herein specifically given or now or hereafter existing at law, in
equity or by statute, and each and every right, power and remedy
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whether specifically herein given or otherwise existing may be
exercised from time to time and as often and in such order as may
be deemed expedient by the Note Trustee and the exercise or the
beginning of the exercise of any right, power and remedy shall
not be construed to be a waiver of the right to exercise at the
same time or thereafter any other right, power or remedy. No
delay or omission by the Note Trustee in the exercise of any
right, power or remedy or in the pursuance of any remedy shall
impair any such right, power or remedy or be construed to be a
waiver of any default on the part of the Owner Trustee or the
Owner Participant or to be an acquiescence therein.
ARTICLE 9
THE NOTE TRUSTEE
SECTION 9.1 Certain Rights and Duties of Note Trustee.
(a) The Note Trustee may rely and shall be protected in acting
or refraining from acting in reliance upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other
paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties.
(b) Any request or direction of the Owner Trustee
mentioned herein shall be sufficiently evidenced by an Owner
Trustee Request or an Officer's Certificate of the Owner Trustee.
(c) Whenever in the administration of this Note
Indenture the Note Trustee shall deem it desirable that a matter
be proved or established prior to taking, suffering or omitting
any action hereunder the Note Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officer's Certificate of the Owner
Trustee.
(d) The Note Trustee may consult with counsel and the
advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon.
(e) The Note Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Note
Indenture at the request or direction of any of the Noteholders
pursuant to this Note Indenture unless such Noteholders shall
have offered to the Note Trustee reasonable security or indemnity
(including, without limitation, the advancement of monies for
out-of-pocket costs) against the costs, expenses and liabilities
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which might be incurred by it in compliance with such request or
direction.
(f) The Note Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture or other
paper or document; but the Note Trustee, in its discretion, may
make such further inquiry or investigation into such facts or
matters as it may see fit, and, if the Note Trustee shall
determine to make such further inquiry or investigation, it shall
be entitled to examine the relevant books, records and premises
of the Owner Trustee, personally or by agent or attorney.
(g) The Note Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly
or indirectly or by or through agents or attorneys and the Note
Trustee shall not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed with due care by
it.
(h) The Note Trustee shall not be personally liable
for debts, contracts or liabilities or damages (collectively,
"Liabilities") incurred in the management or operation of the
Note Indenture Estate, except (x) such Liabilities which result
from its gross negligence, willful misconduct or bad faith other
than in respect of its obligation under Section 3.2 hereof and
(B) such Liabilities which result from its negligence or willful
misconduct in respect of its obligation under Section 3.2 hereof.
(i) For all purposes of this Note Indenture, in the
absence of actual knowledge of a Responsible Officer of the Note
Trustee, the Note Trustee shall not be deemed to have knowledge
of a Default (except the failure of Kmart to pay any installment
of Basic Rent when the same shall become due) unless notified in
writing by any Noteholder, the Owner Participant, the Owner
Trustee or Kmart.
(j) Except during the continuance of an Event of
Default:
(i) the Note Trustee need perform only those duties
that are specifically set forth in this Note Indenture and
no implied covenants or obligations shall be read into this
Note Indenture against the Note Trustee; and
(ii) in the absence of bad faith on its part, the Note
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the Note
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Trustee and conforming to the requirements of this Note
Indenture. However, the Note Trustee shall examine these
certificates and opinions to determine whether or not they
conform to the requirements of this Note Indenture.
(k) If an Event of Default has occurred and is
continuing, the Note Trustee shall exercise its rights and powers
under this Note Indenture, and shall use the same degree of care
and skill in their exercise as a prudent person would use under
the circumstances in the conduct of his or her own affairs.
(l) The Note Trustee may not be released from
liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:
(i) this paragraph does not limit the effect of
paragraph (j) of this Section;
(ii) the Note Trustee shall not be liable for any error
of judgment made in good faith by a Responsible Officer or
Officers, unless it shall be proved that the Note Trustee
was negligent in ascertaining the pertinent facts;
(iii) the Note Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in
accordance with the direction of a Majority in Interest of
the Noteholders relating to the time, method and place of
conducting any proceeding for any remedy available to the
Note Trustee, or exercising any trust or power conferred
upon the Note Trustee under this Note Indenture; and
(iv) no provision of this Note Indenture shall require
the Note Trustee to expend or risk its own funds or
otherwise incur any financial obligation in the performance
of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds
for believing that repayment of such funds or adequate
indemnity against such risk or obligation is not reasonably
assured to it.
(m) Whether or not therein expressly so provided,
every provision of this Note Indenture relating to the conduct or
affecting the liability of or affording protection to the Note
Trustee shall be subject to the provisions of this Section 9.1.
The Note Trustee shall exclude and withhold from each
distribution to any Noteholder other than the initial holder of
the Notes and the Bond Trustee (except as otherwise required by
law) of principal, premium, if any, and interest and other
amounts due hereunder or under the Notes any and all withholding
taxes applicable thereto as required by law. The Note Trustee
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agrees (i) to act as such withholding agent and, in connection
therewith, whenever any present or future taxes or similar
charges are required to be withheld with respect to any amounts
payable in respect of the Notes, to withhold such amounts and
timely to pay the same to the appropriate authority in the name
of and on behalf of the Noteholders, (ii) that it will file any
necessary withholding tax returns or statements when due and
(iii) that, as promptly as possible after the payment of such
amounts, it will deliver to each Noteholder appropriate
documentation showing the payment of such amounts, together with
such additional documentary evidence as such Noteholder may
reasonably request from time to time. The Note Trustee agrees to
file any other information reports as it may be required to file
under United States law. To the extent that the Note Trustee
fails, with respect to any Noteholder, to withhold and pay over
any such taxes to the appropriate taxing authority, the Note
Trustee shall, upon a claim being made for such taxes by such
authority, and before making any claim to Kmart for
indemnification under the Master Indemnification Agreement (if
such indemnification would otherwise be permissible thereunder),
take all reasonable steps to recover such taxes from such
Noteholder, including, without limitation, withholding the amount
of such taxes from subsequent distributions, if any, to such
Noteholder. To the extent that the Note Trustee receives any
amount from Kmart for indemnification of such taxes which the
Note Trustee thereafter recovers from the appropriate Noteholder
(including by withholding from subsequent distributions to such
Noteholder) the Note Trustee shall reimburse Kmart therefor.
(n) For so long as the Notes are outstanding, the Note
Trustee shall assign to the Bond Trustee pursuant to the
Assignment Agreement all of its rights in, to and under (a) this Note
Indenture, (b) the Mortgage, (c) the Assignment, including, without
limitation, the rights and interest of the Note Trustee under the Assignment
to (i) the Lease and all sums now or hereafter payable to the Note Trustee
with respect thereto, including, without limitation, (A) all amounts of Rent
payments pursuant to Article 22 of the Lease, the Note Indenture Estate and
the other Granting Clause Documents and (B) all rights of the Owner Trustee,
now existing or hereafter arising, to exercise any election or option or to
make any decision or determination or to give or receive any notice, consent,
waiver or approval or to take any other action under or in respect of any
Granting Clause Document (other than Excepted Rights), as well as all rights,
powers and remedies on the part of the Owner Trustee, now existing or
hereafter arising and whether arising under any Granting Clause Document or
by statute or at law or equity or otherwise, arising out of any Event of
Default (other than
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Excepted Rights); and (ii) all rents (including Rent, but
excluding Excepted Payments), issues, profits, products, revenues
and other income of all property from time to time subjected to
the lien and security interest of the Mortgage or the Note
Indenture, and all right, title and interest of every nature
whatsoever of the Note Trustee, now existing or hereafter
arising, in and to the same and every part thereof (except for
Excepted Rights and Excepted Payments); (d) the Option to Lease
(except for Excepted Rights and Excepted Payments); and all
proceeds of the foregoing, including all rights of the Note
Trustee under the documents set forth in clauses (a) through (d)
above to exercise any election or option, to give or receive any
notice, consent, waiver or approval or to direct any action to be
taken thereunder by the Note Trustee all to the extent that the
Note Trustee is then entitled to effect each of such rights under
this Note Indenture.
SECTION 9.2 Not Responsible for Recitals or Issuance of
Notes. The recitals contained herein and in the Notes, except
the Note Trustee's certificates of authentication, shall not be
taken as the statements of the Note Trustee, and the Note Trustee
assumes no responsibility for their correctness. The Note
Trustee makes no representations as to the validity or
sufficiency of this Note Indenture, the Note Indenture Estate or
the Notes, except that the Note Trustee in its individual
capacity hereby represents and warrants that this Note Indenture
has been executed and delivered by one of its officers who is
duly authorized to execute and deliver such document on its
behalf and that it has power to perform its obligations
hereunder.
SECTION 9.3 Note Trustee and Authorized Agents May Hold
Notes. The Note Trustee, in its individual or any other
capacity, may become the owner or pledgee of Notes and may
otherwise deal with the Owner Trustee and Kmart with the same
rights it would have if it were not Note Trustee.
SECTION 9.4 Funds May Be Held by Note Trustee;
Investments. (a) Subject to Section 5.2 hereof and subsection
(b) of this Section 9.4, any monies held by the Note Trustee
hereunder as part of the Note Indenture Estate need not be
segregated from other funds except to the extent required by law
and may, until paid out by the Note Trustee as herein provided,
be carried by the Note Trustee on deposit with itself, and the
Note Trustee shall not have any liability for interest upon any
such monies except as otherwise agreed in writing with the Owner
Trustee.
(b) At any time and from time to time (subject to
Section 3.1 hereof), the Note Trustee shall invest and reinvest
in Permitted Investments any monies at the time on deposit with
the Note Trustee as part of the Note Indenture Estate, together
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with any income and gains from the investment and reinvestment
thereof, and sell any Permitted Investments, in either case,
including accrued interest and such Permitted Investments shall
be held by the Note Trustee until so sold in trust as part of the
Note Indenture Estate. The Note Trustee shall not be responsible
for any losses on any investments or sales of Permitted
Investments made pursuant to the procedure specified in this
Section.
SECTION 9.5 Compensation and Reimbursement. The Owner
Trustee agrees, to the extent Additional Rent is made
specifically available to the Owner Trustee by Kmart for the
purposes referred to below pursuant to specific provisions in the
Purchase Agreement, the Lease or the Master Indemnification
Agreement:
(a) to pay, or cause to be paid, to the Note Trustee
from time to time reasonable compensation for all services
rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(b) to reimburse, or cause to be reimbursed, the Note
Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by it in
accordance with any provision of this Note Indenture
(including the reasonable compensation, expenses and
disbursements of its agents and counsel), except any such
expense, disbursement or advance as may be attributable to
its own gross negligence, willful misconduct or bad faith;
and
(c) to indemnify, or cause to be indemnified, the Note
Trustee, in its individual capacity, and any predecessor
Note Trustee for, and to hold it harmless against, any loss,
liability or expense incurred without gross negligence
(other than in respect of its obligation under Section 3.2
hereof), negligence in respect of its obligation under
Section 3.2 hereof, willful misconduct or bad faith on its
part, arising out of or in connection with the acceptance of
administration of this trust or the performance of its
duties hereunder, including the costs and expenses of
defending itself against any claim or liability in
connection with the exercise or performance of any of its
powers or duties hereunder.
As security for the performance of the obligations of
the Owner Trustee under this Section 9.5, the Note Trustee shall
have a lien prior to the Notes upon all property and funds held
or collected by the Note Trustee as such, other than Excepted
Payments and funds held in trust for the payment of principal of,
premium, if any, or interest on particular Notes. Any expenses
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incurred by the Note Trustee after the occurrence of a Lease
Event of Default described in Section 21(v) of the Lease
involving Kmart are intended to constitute expenses of
administration under the Bankruptcy Code.
SECTION 9.6 Corporate Note Trustee Required;
Eligibility. There shall at all times be a Note Trustee
hereunder, which shall be a Person that has a combined capital
and surplus of at least $100,000,000, and is subject to
supervision or examination by Federal or State authority. If
such Person publishes reports of condition at least annually,
pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this
Section 9.6, the combined capital and surplus of such Person
shall be deemed to be its combined capital and surplus as set
forth in its most recent report of condition so published. The
Owner Trustee may not, nor may any Person directly or indirectly
controlling, controlled by, or under common control with the
Owner Trustee, serve as Note Trustee. If at any time the Note
Trustee shall cease to be eligible in accordance with the
provisions of this Section 9.6, it shall resign immediately in
the manner and with the effect hereinafter specified in this
Article.
SECTION 9.7 Resignation and Removal; Appointment of
Successor. (a) No resignation or removal of the Note Trustee and
no appointment of a successor Note Trustee pursuant to this
Article shall become effective until the acceptance of
appointment by the successor Note Trustee under Section 9.8
hereof.
(b) The Note Trustee may resign at any time by giving
written notice thereof to the Owner Trustee and Kmart. If an
instrument of acceptance by a successor Note Trustee shall not
have been delivered to the Owner Trustee, Kmart and the Note
Trustee within 30 days after the giving of such notice of
resignation, the resigning Note Trustee may petition any court of
competent jurisdiction for the appointment of a successor Note
Trustee or any Noteholder who has been a bona fide Noteholder for
at least six months may, subject to the provisions of Sections
8.8 and 8.11 hereof, on behalf of himself or herself and all
others similarly situated, petition any such court for the
appointment of a successor Note Trustee. Such court may
thereupon after such notice, if any, as it may deem proper and
prescribe, appoint a successor Note Trustee.
(c) The Note Trustee may be removed at any time by a
Directive delivered to the Note Trustee, the Owner Trustee and
Kmart.
(d) If at any time:
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(i) the Note Trustee shall cease to be eligible under
Section 9.6 hereof and shall fail to resign after written
request therefor by the Owner Trustee or by such Noteholder
or
(ii) the Note Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent, or a receiver
of the Note Trustee or of its property shall be appointed,
or any public officer shall take charge or control of the
Note Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation,
then, in either such case, (i) the Owner Trustee may remove the
Note Trustee or (ii) subject to Sections 8.8 and 8.11 hereof,
unless the Note Trustee's duty to resign is stayed as provided in
the Trust Indenture Act, any Noteholder who has been a bona fide
Noteholder for at least six months may, on such Noteholder's own
behalf and on behalf of all others similarly situated, petition
any court of competent jurisdiction for the removal of the Note
Trustee and the appointment of a successor Note Trustee. Such
court may thereupon after such notice, if any, as it may deem
proper and prescribe, remove the Note Trustee and appoint a
successor Note Trustee.
(e) If the Note Trustee shall resign, be removed or
become incapable of acting, or if a vacancy shall occur in the
office of Note Trustee for any cause, the Owner Trustee shall
promptly appoint a successor Note Trustee. If, within one year
after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Note Trustee shall be
appointed pursuant to a Directive of a Majority in Interest of
Noteholders delivered to the Owner Trustee, Kmart and the
retiring Note Trustee, the successor Note Trustee so appointed
shall, forthwith upon its acceptance of such appointment, become
the successor Note Trustee and supersede the successor Note
Trustee appointed by the Owner Trustee. If no successor Note
Trustee shall have been so appointed by the Owner Trustee or the
Noteholders and accepted appointment in the manner provided in
Section 9.8 hereof, any Noteholder who has been a bona fide
Noteholder for at least six months may, subject to the provisions
of Sections 8.8 and 8.11 hereof, on behalf of himself or herself
and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Note
Trustee. Such court may thereupon after such notice, if any, as
it may deem proper or prescribe, appoint a successor Note
Trustee.
(f) Upon delivery to the Owner Trustee by the Note
Trustee of the Register, the Owner Trustee shall give notice of
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each resignation and each removal of the Note Trustee and each
appointment of a successor Note Trustee by mailing written notice
of such event by first-class mail, postage prepaid, to the
Noteholders as their names and addresses appear in the Note
Register. Each notice shall include the name of the successor
Note Trustee and the address of its Note Trustee Office.
SECTION 9.8 Acceptance of Appointment by Successor.
Every successor Note Trustee appointed hereunder shall execute,
acknowledge and deliver to the Owner Trustee, Kmart and to the
retiring Note Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Note
Trustee shall become effective and such successor Note Trustee,
without any further act, deed or conveyance, shall become vested
with all of the rights, powers, trusts and duties of the retiring
Note Trustee; but on request of the Owner Trustee or the
successor Note Trustee, such retiring Note Trustee shall, upon
payment of its charges, execute and deliver an instrument
transferring to such successor Note Trustee all of the rights,
powers and trusts of the retiring Note Trustee, and such retiring
Note Trustee shall duly assign, transfer and deliver to such
successor Note Trustee all property and money held by such
retiring Note Trustee hereunder, subject nevertheless to its
lien, if any, provided for in Section 9.5 hereof. Upon request
of any such successor Note Trustee, the Owner Trustee shall
execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Note Trustee all such
rights, powers and trusts.
No successor Note Trustee shall accept its appointment
unless at the time of such acceptance such successor Note Trustee
shall be qualified and eligible under this Article.
SECTION 9.9 Merger, Conversion, Consolidation or
Succession to Business. Any corporation into which the Note
Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Note Trustee shall be a
party, or any corporation succeeding to all or substantially all
of the corporate trust business of the Note Trustee, shall be the
successor of the Note Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto. In case
any Notes shall have been authenticated, but not delivered, by
the Note Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Note Trustee
may adopt such authentication and deliver the Notes so
authenticated with the same effect as if such successor Note
Trustee had itself authenticated such Notes.
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SECTION 9.10 Co-Trustee or Separate Trustee. (a) If at
any time or times it shall be necessary or prudent in order to
conform to any law of any jurisdiction in which property shall be
held subject to the lien hereof, or the Note Trustee shall be
advised by counsel, satisfactory to it, that it is necessary,
prudent or convenient in the interest of the Noteholders, or upon
receipt of a Directive, the Note Trustee and the Owner Trustee
shall execute and deliver all instruments and agreements
necessary or proper to constitute another bank or trust company
or one or more Persons approved by the Note Trustee either to act
as co-trustee or co-trustees of all or any part of the Note
Indenture Estate jointly with the Note Trustee originally named
herein or any successor or successors, or to act as separate
trustee or trustees of all or any such property. In the event
the Owner Trustee shall have not joined in the execution of such
instruments and agreements within 10 days after the receipt of a
written request from the Note Trustee to do so, or in case an
Event of Default shall have occurred and be continuing, the Note
Trustee may act under the foregoing provisions of this Section
without the concurrence of the Owner Trustee upon giving written
notice to the Owner Trustee of the name and address of such
proposed additional trustee; and the Owner Trustee hereby
appoints the Note Trustee its agent and attorney to act for it
under the foregoing provisions of this Section in either of such
contingencies; provided, however, that within 90 days following
any appointment of an additional trustee without the concurrence
of the Owner Trustee, the Owner Trustee may, after consultation
with Kmart, if there shall not have occurred and be continuing an
Event of Default, remove such additional trustee by written
notice to the Note Trustee, the additional trustee and Kmart.
(b) Every additional trustee hereunder shall, to the
extent permitted by law, be appointed and act, and such
additional trustee and its successors shall act, subject to the
following provisions and conditions, namely:
(i) the Notes shall be authenticated and delivered,
and all powers, duties, obligations and rights conferred
upon the Note Trustee in respect of the custody, control and
management of monies, papers or securities, shall be
exercised solely by the Note Trustee;
(ii) all rights, powers, duties and obligations
conferred or imposed upon the Note Trustee shall be
conferred or imposed upon and exercised or performed by the
Note Trustee and such additional trustee or trustees
jointly, except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be
performed, the Note Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such
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rights, powers, duties and obligations shall be exercised
and performed by such additional trustee or trustees;
(iii) no power given hereby to, or which it is provided
hereby may be exercised by, any such additional trustee or
trustees, shall be exercised hereunder by such additional
trustee or trustees, except jointly with, or with the
consent in writing of, the Note Trustee, anything herein
contained to the contrary notwithstanding;
(iv) no trustee hereunder shall be personally liable by
reason of any act or omission of any other trustee
hereunder; and
(v) after consultation with the Owner Trustee and the
Note Trustee, at any time by an instrument in writing,
executed by them jointly, may remove any such additional
trustee, and in that case, by an instrument in writing
executed by them jointly, may appoint a successor or
successors to such additional trustee or trustees, as the
case may be, anything herein contained to the contrary
notwithstanding. In the event that the Owner Trustee shall
not have joined in the execution of any such instrument
within 10 days after the receipt of a written request from
the Note Trustee to do so, the Note Trustee shall have the
power to remove any such additional trustee and to appoint a
successor additional trustee without the concurrence of the
Owner Trustee; and the Owner Trustee hereby appoints the
Note Trustee its agent and attorney to act for it in such
connection in such contingency; provided, however, that if
there shall not have occurred and be continuing an Event of
Default, within 90 days following any appointment of a
successor additional trustee without the concurrence of the
Owner Trustee, the Owner Trustee may remove such successor
additional trustee by written notice to the Note Trustee and
the successor additional trustee. In the event that the Note
Trustee alone shall have appointed an additional trustee or
trustees as above provided, it may at any time, by an
instrument in writing, remove any such additional trustee,
the successor to any such additional trustee so removed to
be appointed by the Owner Trustee and the Note Trustee, or
by the Note Trustee alone, as hereinbefore in this Section
provided, subject to the aforesaid right of Owner Trustee,
if there shall not have occurred and be continuing an Event
of Default, to remove such additional trustee within 90 days
after such appointment.
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ARTICLE 10
NOTEHOLDERS' LISTS
SECTION 10.1 List of Names and Addresses of Noteholders.
The Note Trustee shall preserve in as current a form as is
reasonably practicable the most recent list of the names and
addresses of the Noteholders. A copy of such list shall be
available to any Noteholder upon request made to the Note
Trustee.
Every Noteholder, by receiving and holding a Note, agrees
with the Owner Trustee and the Note Trustee that neither the
Owner Trustee nor the Note Trustee nor any agent of either of
them shall be held responsible by reason of the disclosure of any
such information as to the names and addresses of the Noteholders
in accordance with this Section, regardless of the source from
which such information was derived.
ARTICLE 11
SUPPLEMENTAL INDENTURES
SECTION 11.1 Supplemental Indentures without Consent of
Noteholders. Without the consent of any of the Noteholders, each
of the Owner Trustee and the Note Trustee shall enter into one or
more Supplemental Indentures, in form satisfactory to the Note
Trustee, for the following purposes:
(a) subject to the provisions of the Operative
Documents, to evidence the succession of another corporation
to that of Kmart or to evidence the succession of another
corporation to that of the Owner Trustee, and the assumption
by any such successor of the covenants of the Owner Trustee
contained herein and in the Notes;
(b) to convey, transfer and assign to the Note
Trustee, as the case may be, and to subject to the lien of
this Note Indenture, with the same force and effect as
though included in the granting clause hereof, additional
property, and to correct or amplify the description of any
property at any time subject to the lien of this Note
Indenture or to assure, convey and confirm unto the Note
Trustee, as the case may be, any property subject or
required to be subject to the lien of this Note Indenture;
(c) to modify, eliminate or add to the provisions of
this Note Indenture to such extent as shall be necessary to
qualify this Note Indenture (including any Supplemental
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Indenture) under the Trust Indenture Act, or under any
similar Federal statute hereafter enacted;
(d) to cure any ambiguity or to correct any provision
herein which may be defective or inconsistent with any other
provision herein;
(e) to evidence the succession of a new Note Trustee
hereunder or add a co-trustee or separate trustee and to
make provisions as to the rights and duties of such
additional trustee and as to the appointment and dismissal
of any such additional trustee;
(f) to make any other amendments or provisions with
respect to matters or questions arising under this Note
Indenture which shall not be inconsistent with the
provisions of this Note Indenture, provided such amendment
or provision shall not adversely affect in any material
respect the interest of the Noteholders; or
(g) to make such other amendments or provisions as are
necessary to protect the REMIC status of the REMICs
described in the Bond Indenture.
Notwithstanding the foregoing, no Supplemental
Indenture shall become effective (a) that is inconsistent with
the rights of Kmart under the Lease or (b) except with the
consent of the Noteholders of all Notes then Outstanding if as a
result thereof the amounts payable to the Owner Trustee under the
Lease (other than Excepted Payments) and assigned to the Note
Trustee hereunder shall not be sufficient to pay when due the
principal of, premium, if any, and interest on all Outstanding
Notes.
SECTION 11.2 Supplemental Indentures with Consent of
Noteholders. With the consent of a Majority in Interest of
Noteholders, by Directive delivered to the Owner Trustee, Kmart
and the Note Trustee, the Owner Trustee may, and the Note
Trustee, subject to Section 11.3 hereof, shall, enter into
Supplemental Indentures for the purpose of adding any provisions
to or changing in any manner the rights and obligations of the
Noteholders and of the Owner Trustee under this Note Indenture;
provided, however, that no such Supplemental Indenture shall (a)
be inconsistent with the rights of Kmart under the Lease and (b)
without the consent of the holder of each Outstanding Note
affected thereby:
(i) change the Stated Maturity or any date for payment
of the principal of, or any installment of interest on, or
the dates or circumstances of payment of premium, if any,
on, any Note, or reduce the principal amount thereof or the
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interest thereon or any amount payable upon the redemption
thereof, or change the circumstances for redemption or
change the place of payment where, or the coin or currency
in which, any Note or the premium, if any, or the interest
thereon is payable, or impair the right to institute suit
for the enforcement of any such payment of principal or
interest on or after the Stated Maturity thereof (or, in the
case of redemption, on or after the Redemption Date subject,
however, to Section 6.5(c) hereof) or such payment of
premium, if any, on or after the date such premium becomes
due and payable or change the dates or the amounts of
payments to be made through installment payments in respect
of a Note of any series;
(ii) permit the creation of any Lien prior to or pari
passu with the lien of this Note Indenture with respect to
any of the Note Indenture Estate, or terminate the lien of
this Note Indenture on any of the Note Indenture Estate or
deprive any Noteholder of the security afforded by the lien
of this Note Indenture;
(iii) terminate the Lease, reduce the amounts payable
under the Lease assigned to the Note Trustee or change the
time for the payment thereof so that such payments are less
than the amounts necessary to pay when due the principal of,
premium, if any, and interest on the Outstanding Notes;
(iv) reduce the percentage in principal amount of the
Outstanding Notes of all series, the consent of whose
holders is required for any such Supplemental Indenture, or
the consent of whose holders is required for any waiver (of
compliance with certain provisions of this Note Indenture or
certain defaults hereunder and their consequences) provided
for in this Note Indenture;
(v) modify any of the provisions of this Section 11.2
hereof, except to increase the percentage referenced therein
or to provide that certain other provisions of this Note
Indenture cannot be modified or waived without the consent
of each Noteholder affected thereby; or
(vi) cause any Note to fail to be a "qualified
mortgage" within the meaning of section 860G(a)(3) of the
Code with respect to the REMIC to which such Note relates
pursuant to the Bond Indenture.
Upon receipt by the Note Trustee of an Officer's
Certificate of the Owner Trustee and such other documentation as
the Note Trustee may reasonably require and upon the filing with
the Note Trustee of evidence of the Act of such Noteholders, the
Note Trustee shall join in the execution of such Supplemental
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Indenture or other instrument, as the case may be, subject to the
provisions of Section 11.3 hereof.
It shall not be necessary for any Act of Noteholders
under this Section to approve the particular form of any proposed
Supplemental Indenture, but it shall be sufficient if such Act
shall approve the substance thereof. Promptly after the
execution by the Owner Trustee and the Note Trustee of any
Supplemental Indenture pursuant to the provisions of this Section
11.2, the Note Trustee shall transmit a written notice, setting
forth in general terms the substance of such Supplemental
Indenture, to all Noteholders, as the names and addresses of such
Noteholders appear on the Note Register. Any failure of the Note
Trustee to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such
Supplemental Indenture. The Note Trustee shall provide Kmart with
a true copy of any Supplemental Indenture so entered into from time
to time.
SECTION 11.3 Execution of Supplemental Indentures. In
executing, or accepting the additional trusts created by, any
Supplemental Indenture permitted by this Article or the
modifications thereby of the trusts created by this Note
Indenture, the Note Trustee shall be entitled to receive, and
shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such Supplemental Indenture is
authorized or permitted by this Note Indenture.
SECTION 11.4 Effect of Supplemental Indentures. Upon
the execution of any Supplemental Indenture permitted under this
Article, this Note Indenture shall be modified in accordance
therewith, and such Supplemental Indenture shall form a part of
this Note Indenture for all purposes; and every holder of Notes
theretofore or thereafter authenticated and delivered hereunder
shall be bound to this Note Indenture as so supplemented.
SECTION 11.5 Reference Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
Supplemental Indenture pursuant to this Article may, and shall if
required by the Owner Trustee, bear a notation in form approved
by the Owner Trustee and the Note Trustee as to any matter
provided for in such Supplemental Indenture; and, in such case,
suitable notation may be made upon Outstanding Notes after proper
presentation thereof and demand therefor. If the Owner Trustee
shall so determine, new Notes so modified as to conform, in the
opinion of the Owner Trustee and the Note Trustee, to any such
Supplemental Indenture may be prepared and executed by the Owner
Trustee and authenticated and delivered by the Note Trustee or
other authorized agent in exchange for Outstanding Notes.
ARTICLE 12
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SUBSTITUTION OF PROPERTIES
SECTION 12.1 Substitution of Properties. In the event
that Kmart substitutes a property for the Demised Premises in
accordance with Article 42 of the Lease, the Owner Trustee shall
substitute such property for the Demised Premises under this Note
Indenture, in which case (a) such property shall be subjected to
the lien hereof and (b) the initial Demised Premises shall be
released from the lien hereof, provided that the conditions set
forth in Article 23 of the Mortgage are satisfied in full.
The Note Trustee shall from time to time execute any
written instrument to confirm the propriety of any action taken
by the Owner Trustee with respect to the substitution of a
property upon receipt by the Note Trustee of an Owner Trustee
Request requesting the same, together with an Officer's
Certificate of Kmart stating that said action was duly taken by
the Owner Trustee in conformity with the Lease and that the
execution of such written instrument is appropriate to confirm
the propriety of such action under this Section 12.1.
SECTION 12.2 Purchaser Not Bound to Inquire. In no
event shall any purchaser or purchasers in good faith of any
property purported to be released hereunder be bound to ascertain
the authority of the Note Trustee to execute a release, or to
inquire as to any facts required by the provisions hereof for the
exercise of such authority, or to see to the application of the
purchase monies.
SECTION 12.3 Appoint Note Trustee Attorney-in-Fact. For
the purpose of granting releases provided in this Article 12, the
Note Trustee is hereby irrevocably constituted as agent and
attorney-in-fact for the Noteholders and to that end may execute,
sign, seal, acknowledge and deliver all necessary instruments of
release as may be requested by Kmart or the Owner Trustee.
ARTICLE 13
SUNDRY PROVISIONS
SECTION 13.1 Kmart Not Liable. In no event shall any
provision of this Note Indenture or the Notes constitute a
guarantee or assumption by Kmart or the Remainder Purchaser of
the Notes or the indebtedness represented thereby.
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IN WITNESS WHEREOF, the parties hereto have caused the
Note Indenture to be duly executed by their respective officers
thereunto duly authorized, and their respective corporate seal to
be hereunto affixed, all as of the day and year first above
written.
[SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION]
[SOCIETY NATIONAL BANK],
not in its individual capacity
except to the extent set forth
herein, but as Owner Trustee
under the Trust Agreement
[CORPORATE SEAL]
Attest:
By:
Name: Name:
Title: Title:
THE BANK OF NEW YORK,
as Note Trustee
[CORPORATE SEAL]
Attest:
By:
Name: Name:
Title: Title:
The address of the within-
named mortgagee is:
on behalf of Mortgagee
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STATE OF )
) ss.:
COUNTY OF )
The foregoing First Supplemental and Restated Trust
Indenture, Assignment of Lease and Rents and Security Agreement
was acknowledged before me, the undersigned Notary Public, in the
County of _____________, State of _____________, this ____ day of
March 1994, by _______________________________________, as
_________________________ of __________________________, not in
its individual capacity, except as expressly set forth in the
foregoing Note Indenture but solely as Owner Trustee, on behalf
of the Owner Trustee.
[Notarial Seal)
Notary Public
My commission expires:
STATE OF )
) ss.:
COUNTY OF )
The foregoing First Supplemental and Restated Trust
Indenture, Assignment of Lease and Rents and Security Agreement
was acknowledged before me, the undersigned Notary Public, in the
County of _____________, State of ____________, this ____ day of
March 1994, by _________________________, as ______________
____________ of _______________________, on behalf of the Note
Trustee.
[Notarial Seal)
Notary Public
My commission expires:
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<PAGE> 71
APPENDIX A
TO THE
TRUST INDENTURE, ASSIGNMENT OF LEASES
AND RENTS AND SECURITY AGREEMENT
FORM OF
DEFINITIONS AND RULES OF USAGE
Section 1.1 Rules of Usage. The following rules of usage
shall apply to the Note Indenture unless otherwise required by the context:
(a) Singular words shall connote the plural as well as
the singular, and vice versa (except as indicated), as may be
appropriate.
(b) Unless otherwise indicated, references in the Note
Indenture to appendices, articles, schedules, sections or exhibits are
references to appendices, articles, schedules, sections or exhibits of
the Note Indenture.
(c) The headings, subheadings and table of contents used
in the Note Indenture are solely for convenience of reference and
shall not constitute a part of the Note Indenture nor shall they
affect its meaning, construction or effect.
(d) References to any Person shall include such Person,
its successors and permitted assigns.
(e) Each of the parties to the Note Indenture and their
counsel have reviewed and revised, or requested revisions to, the Note
Indenture, and the usual rule of construction that any ambiguities are
to be resolved against the drafting party shall be inapplicable in the
construction and interpretation of the Note Indenture and any
amendments or exhibits thereto.
(f) "or" is not exclusive and "include" and "including"
are not limiting.
(g) "hereby", "herein", "hereof", "hereunder", "this
Agreement" or like words used in the Note Indenture refer to the Note
Indenture, as it may be amended, modified or supplemented from time to
time in accordance with its terms.
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Section 1.2 Definitions. As used in the Note Indenture, the
following terms shall have the respective meanings assigned thereto:
"Act", when used with respect to any Noteholder, shall have the
meaning set forth in Section 1.4 of the Note Indenture.
"Additional Rent" shall have the meaning set forth in Section
3(a) of the Lease.
"Affiliate", with respect to any Person, shall mean any other
Person directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such Person. For purposes of this definition,
the term "control" (including the correlative meanings of the terms "controlled
by" and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Applicable Law" shall mean all applicable laws, statutes,
treaties, rules, codes, ordinances, regulations, permits, certificates, orders,
interpretations, licenses and permits of any governmental authority and
judgments, decrees, injunctions, writs, orders or like action of any court,
arbitrator or other administrative, judicial or quasi-judicial tribunal or
agency of competent jurisdiction (including those pertaining to health, safety
or the environment).
"Assigned Payments" shall have the meaning set forth in the
granting clause of the Note Indenture.
"Assignment" shall mean the Assignment of Rights dated the
date hereof from the Owner Trustee to the Note Trustee.
"Assignment Agreement" shall mean the Assignment Agreement
dated the date hereof from the Note Trustee, as assignor, to the Bond Trustee,
as assignee.
"Authorized Officer" shall mean, with respect to the Note
Trustee, any officer in the Corporate Trust Department of the Note Trustee who
shall be duly authorized by appropriate corporate action to authenticate a Note
or to execute any Operative Document, and shall mean, with respect to the Owner
Trustee, any officer of the Owner Trustee in its Corporate Trust Administration
department who shall be duly authorized by appropriate corporate action to
deliver an Owner Trustee Request or to execute any Operative Document.
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"Average Life" shall mean, as of the date of determination,
with respect to the Notes, the quotient obtained by dividing (a) the sum of the
products of the numbers of years from the date of determination to the dates of
each successive scheduled principal payment of the Notes multiplied by the
amount of such principal payment by (b) the sum of all such principal payments.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of
1978, as amended and as the same may be further amended, and any other
Applicable Law with respect to bankruptcy, insolvency or reorganization that is
successor thereto.
"Basic Rent" shall have the meaning set forth in Section 3(a)
of the Lease.
"Bond Indenture" shall mean the Collateral Trust Indenture
dated as of the date hereof between the Issuer and the Bond Trustee.
"Bonds" shall mean the secured lease bonds issued pursuant to
the Bond Indenture.
"Bond Trustee" shall mean The Bank of New York, a New York
banking corporation, in its capacity as trustee under the Bond Indenture, and
such other Person that may from time to time be acting as successor trustee
under the Bond Indenture.
"Business Day" shall mean any day other than a Saturday or
Sunday or other day on which banks in New York, New York, Troy, Michigan or the
city in which the corporate trust offices of any of the Owner Trustee, the Note
Trustee, the Bond Trustee, or the principal offices of Kmart are located are
authorized or required to be closed or, if no Note is Outstanding, the city in
which the principal corporate trust office of the Owner Trustee is located.
"Closing Date" shall mean March __, 1994.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Deed" shall mean the Deed, dated as of December 15, 1993,
between Kmart or a subsidiary thereof, as seller, and the Owner Trustee, as
buyer, substantially in the form of Exhibit A to the Purchase Agreement.
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"Default" shall mean an event which, after giving of notice or
lapse of time, or both, would become an Event of Default.
"Defeasance Release" shall have the meaning set forth in
Section 3.1 of the Note Indenture.
"Delinquent Rate" shall mean, with respect to a Note, 1% per
annum over the rate of interest for such Note.
"Demised Premises" shall have the meaning set forth in Section
1(a) of the Lease.
"Directive" shall mean an instrument in writing executed in
accordance with the terms and provisions of the Note Indenture by the
Noteholders, or their duly authorized agents or attorneys-in-fact, representing
a Majority in Interest of the Noteholders, directing the Note Trustee to take
or refrain from taking the action specified in such instrument or otherwise
advising the Note Trustee; provided, however, that each holder of Notes then
Outstanding, or its duly authorized agent or attorney-in-fact, shall be
entitled to direct the Note Trustee only with respect to the aggregate unpaid
principal amount of Notes (or portion thereof) issued and Outstanding that are
registered in the name of such Noteholder and that are certified by such
Noteholder or its duly authorized agent or attorney-in-fact to be (a) held by
it for its own account and not pledged as collateral for any of its obligations
or (b) pledged as collateral for one or more of its obligations, or obligations
with respect to which it is acting as trustee under a related indenture, but in
respect of which it has received a directive, satisfactory in form and
substance to the Note Trustee, given by the holder or holders of a
proportionate interest in the obligations secured by such Notes in accordance
with the instrument governing such obligations. More than one directive can be
given by a registered Noteholder or its duly authorized agent or
attorney-in-fact pursuant to clause (b) of the preceding sentence, and such
directives may be contradictory or inconsistent, so long as each directive to
take or refrain from taking the action specified therein or otherwise advising
the Note Trustee meets the requirements of said clause (b).
"Event of Default" shall mean any of the events specified in
Section 8.1 of the Note Indenture.
"Event of Loss" shall mean an event giving rise to a Tenant's
Purchase Offer under Section 15(f) or 16(a) of the Lease.
"Excepted Payments" shall mean:
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(a) all indemnity payments (including, without
limitation, payments under Article 7 of the Lease, payments under the
Tax Indemnification Agreement, whether made by adjustment to Basic
Rent, Additional Rent or otherwise and all payments under the Master
Indemnification Agreement) to which the Owner Trustee in its
individual capacity, the Owner Participant or any of their respective
Affiliates (or the respective successors, assigns, agents, officers,
directors or employees of the Owner Trustee or the Owner Participant)
is entitled under the Operative Documents;
(b) any amounts payable under any Operative Document to
pay the Owner Trustee's fee or reimburse the Owner Trustee, the Owner
Participant or any of their respective Affiliates (including the
reasonable expenses of the Owner Trustee and the Owner Participant
incurred in connection with any such payment) for performing or
complying with any of the obligations of Kmart under and as permitted
by any Operative Document;
(c) any amount payable to the Owner Participant by any
Transferee as the purchase price of the Owner Participant's interest
in the Trust Estate (or a portion thereof);
(d) any insurance proceeds (or payments with respect to
risks self-insured or policy deductibles) under personal injury or
property damage liability policies maintained under any Operative
Document for the benefit of the Owner Trustee or the Owner
Participant; provided that such insurance does not reduce the amounts
available pursuant to the provisions of Articles 15 and 17 of the
Lease;
(e) any insurance proceeds, if any, payable under
policies separately maintained by the Owner Trustee or the Owner
Participant as permitted by the Lease; and
(f) any payments in respect of interest to the extent
attributable to payments referred to in clauses (a) through (e) above.
"Excepted Rights" shall mean (a) all rights with respect to
Excepted Payments of the Person entitled thereto and (b) all rights and
privileges expressly reserved to the Owner Trustee or the Owner Participant
with the Note Trustee pursuant to clauses (aa), (bb) and (cc) of the Note
Indenture for the periods specified in the Note Indenture.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended and as the same may be further amended, or any comparable successor
Applicable Law.
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"Final Payment Date" shall have the meaning set forth in
Article 22 of the Lease.
"Granting Clause Documents" shall mean the Deed, the Lease,
the Mortgage, the Assignment and the Option to Lease.
"Improvements" shall have the meaning set forth in Section 16
of the Purchase Agreement.
"Interim Closing Date" shall mean December 27, 1993.
"Interim Notes" shall mean the Series X Note, The Series Y
Note and the Series Z Note, issued pursuant to the Original Note Indenture.
"Issuer" shall mean FGHK, Inc., a New York corporation, its
successors and assigns.
"Kmart" shall mean Kmart Corporation, and its successors and
assigns.
"Land" shall mean the parcel of land on which the Improvements
are located, as more fully described in Exhibit A to the Lease.
"Lease" shall mean the Lease Agreement dated as of December
15, 1993, as amended as of the date hereof, between the Lessor and Kmart, with
respect to the Demised Premises located in the City of ____________, County of
____________, and State of __________, substantially in the form of Exhibit G-1
to the Purchase Agreement, as the same may be amended, modified or supplemented
from time to time in accordance with the provisions thereof and of the Note
Indenture.
"Lease Event of Default" shall mean any of the events
specified in Article 21 of the Lease and defined as an "Event of Default"
therein.
"Lessor" shall mean the Owner Trustee, as lessor under the
Lease, and, to the extent permitted under the Trust Agreement and the other
Operative Documents, its successors and assigns as lessor under the Lease.
"Lessor's Excess Proceeds Amount" shall mean the amount of
excess proceeds available pursuant to Section 16(d) of the Lease; provided that
such amount does not exceed, at the time of such occurrence, the lesser of (a)
$500,000 and (b) 10% of the purchase price of the Property at the Interim
Closing Date of the Demised Premises in which case the Lessor's Excess Proceeds
Amount shall equal zero.
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"Lessor's Liens" shall have the meaning set forth in Section
5(e) of the Lease except for such Liens incurred as result of the execution and
delivery of this Note Indenture, the Mortgage or the execution, authentication
and delivery of the Notes or as contemplated or required by any of the
foregoing.
"Lien" shall mean any mortgage, deed of trust, deed to secure
debt, pledge, security interest, encumbrance, lien, easement, restriction,
servitude or charge of any kind encumbering the Land or the Improvements,
including, without limitation, any irrevocable license, conditional sale or
other title retention agreement, any lease in the nature thereof or the filing
of, or agreement to execute as "debtor", any financing or continuation
statement under the Uniform Commercial Code of any jurisdiction or any federal,
state or local lien imposed pursuant to any Environmental Law as defined in
Article 13 of the Lease.
"Majority in Interest" shall mean Noteholders holding a
majority in principal amount of all Outstanding Notes under the Note Indenture
at the time of any such determination.
"Make-Whole Premium" shall mean the sum of the make-whole premiums on
all outstanding Notes being redeemed. The make-whole premium, if any, on any
Note shall mean an amount equal to the positive difference, as of the date of
determination, between (a) the present value of all future payments of
principal and interest, including any principal amount due at maturity,
discounted semi-annually at an interest rate per annum equal to (i) the average
yield for "This Week", as provided in the Treasury Constant Maturity Yield
Index published by the Federal Reserve Bank of New York in the Federal Reserve
Statistical Release designated "H.15(519) Selected Interest Rates", or a
successor publication, published next preceding two Business Days prior to
redemption, for instruments having a maturity corresponding to the remaining
Average Life of such Note (the "TCMYI") plus (ii) 50 basis points, and (b) the
outstanding principal amount of such Note to be redeemed; provided, however,
that if there is no TCMYI for instruments having a maturity corresponding to
the Average Life of such Note, then the TCMYI shall equal the straight-line
interpolation between the interest rates on the respective Treasury issues both
greater and lesser, most closely approximating the Average Life of the Note
(rounded to the fourth decimal place); and provided further that if the Average
Life of such Note is less than one year, the one-year TCMYI shall be used.
"Master Indemnification Agreement" shall mean the Master
Indemnification Agreement dated as of December 15, 1993 as amended as of the
date hereof, between Kmart and the indemnified parties named therein,
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as the same may be amended, modified or supplemented from time
to time in accordance with the provisions thereof.
"Mortgage" shall mean the first mortgage, deed of trust or
deed to secure debt, as applicable, dated as of the date hereof, covering the
Demised Premises including the Improvements thereon, from the Owner Trustee, as
borrower, to or for the benefit of the Note Trustee, as beneficiary, for the
benefit of the Noteholders as at the time supplemented or amended.
"Note Indenture" shall mean the First Supplemental and
Restated Trust Indenture, Assignment of Lease and Rents and Security Agreement
dated as of March __, 1994, between the Owner Trustee and the Note Trustee,
relating to the Notes as the same may be amended, modified or supplemented from
time to time in accordance with the provisions thereof.
"Note Indenture Estate" shall have the meaning set forth in
the granting clause of the Note Indenture.
"Note Register" shall have the meaning set forth in Section
2.6 of the Note Indenture.
"Note Trustee" shall mean The Bank of New York, a New York
banking corporation, not in its individual capacity except as otherwise
expressly provided, but solely as Note Trustee under the Note Indenture, and
each successor trustee and co-trustee thereunder.
"Note Trustee Office" shall mean the office of the Note
Trustee located at 101 Barclay Street, New York, New York 10046, or such other
office as may be designated by the Note Trustee to the Owner Trustee and each
holder of an Outstanding Note under the Note Indenture.
"Noteholder" shall mean each of the registered owners from
time to time of the Outstanding Notes, except that so long as the Outstanding
Notes are subject to the Lien of the Bond Indenture, the term "Noteholder" for
all purposes hereof, shall mean the Bond Trustee.
"Noteholder's Excess Proceeds" shall mean the amount of excess
proceeds to be paid to the Noteholders pursuant to Section 16(d) of the Lease,
less the Lessor's Excess Proceeds Amount.
"Notes" shall mean the Series A Note, the Series B Note and
the Series C Note issued pursuant to the Note Indenture and any notes issued in
replacement thereof.
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"Officer's Certificate" shall mean (a) in the case of [Shawmut
Bank Connecticut, National Association,] [Society National Bank,] in its
individual capacity or as Owner Trustee, and The Bank of New York, in its
individual capacity or as Note Trustee, a certificate signed by any Authorized
Officer of such Person and (b) in the case of any other Person, a certificate
signed by the President or any Vice President and by the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of such Person.
"Operative Documents" shall mean the Purchase Agreement, to
the extent relating to the Demised Premises under the Lease, the Lease, the
Mortgage, the Trust Agreement, this Note Indenture, the Notes, the Master
Indemnification Agreement, and the Option to Lease.
"Opinion of Counsel" shall mean a written opinion of counsel
for any Person either expressly referred to in the Note Indenture or otherwise
reasonably satisfactory to the Note Trustee which may include, without
limitation, independent counsel to the Owner Trustee, the Owner Participant or
Kmart.
"Option to Lease" shall mean the Option and Estate for Years
Agreement dated as of December 15, 1993, between the Remainder Purchaser and
the Owner Trustee relating to the Demised Premises.
"Outstanding", when used with respect to Notes, shall mean, as
of the date of determination, all such Notes theretofore issued, authenticated
and delivered under the Note Indenture, except (a) Notes theretofore canceled
by the Note Trustee or delivered to the Note Trustee for cancellation, (b)
Notes or portions thereof for the payment of which the Note Trustee holds (and
has notified the Noteholders thereof that it holds) in trust for that purpose
an amount sufficient to make full payment thereof when due and (c) Notes in
exchange for, or in lieu of, other Notes that have been issued, authenticated
and delivered pursuant to the Note Indenture; provided, however, that any Note
owned by Kmart, the Owner Trustee or the Owner Participant or any Affiliate of
any of them shall be disregarded and deemed not to be Outstanding for the
purpose of any Directive, but not for any other purpose.
"Owner Participant" shall mean the Owner Participant named in
the Trust Agreement, its successors and, to the extent permitted by the Trust
Agreement and the Purchase Agreement, its assign or assigns. If, at any time,
there is more than one Owner Participant, then the term "Owner Participant"
shall refer collectively to all such Owner Participants.
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"Owner Trust" shall mean the trust established pursuant to the
Trust Agreement.
"Owner Trustee" shall mean [Shawmut Bank Connecticut, National
Association,] [Society National Bank,] a national banking association, not in
its individual capacity except as otherwise expressly provided in the Purchase
Agreement and any other Operative Document, but solely as Owner Trustee under
the Trust Agreement, and each successor as trustee and each separate trustee
and co-trustee thereunder.
"Owner Trustee Request" shall mean a written request signed in
the name of the Owner Trustee by an Authorized Officer thereof.
"Partial Loss" shall mean a taking of any portion of the
Demised Premises (a "Partial Condemnation") as described in Section 16(b) of
the Lease or a casualty that is not a total or substantial casualty described
in Section 15(f) of the Lease.
"Payment Dates" shall mean the dates on which interest will be
payable in immediately available funds on the unpaid principal amount of each
Outstanding series of Notes, at the applicable interest rate set forth on their
faces, on each January 1 and July 1, commencing on [July] 1, 1994.
"Permitted Investments" shall mean bonds, notes and other
obligations of the United States of America and securities unconditionally
guaranteed as to the payment of principal and interest by the United States of
America or any agency thereof having the full faith and credit of the United
States of America, and having maturities, when acquired, of not more than six
months or such lesser time as is necessary for payment of any amounts pursuant
to the Note Indenture.
"Permitted Liens" shall have the meaning set forth in Article
20 of the Lease.
"Person" shall mean any individual, partnership, corporation,
limited-liability company, trust, unincorporated association or joint venture,
a government or any department or agency thereof, or any other entity.
"Personalty" shall have the meaning set forth in Section 15 of
the Purchase Agreement.
"Purchase Agreement" shall mean the Agreement for Sale of Real
Estate dated as of the date hereof, among Kmart, the Owner Participant, the
Remainder Purchaser, the Owner Trustees and the Remainder Owner Trustees set
forth therein, as the same
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may be amended, modified or supplemented from time to time in accordance with
the provisions thereof.
"Purchase Offer Termination Date" shall have the meaning set
forth in Article 41 of the Lease.
"Record Date", when used with respect to any Rent Payment
Date, shall mean the close of business on the 15th day of the calendar month
preceding the month in which such Rent Payment Date occurs.
"Redemption Date", when used with respect to any Note or
portion thereof to be redeemed, shall mean (a) the Purchase Offer Termination
Date with respect to a termination pursuant to Articles 3, 15 and 16 of the
Lease, (b) the Termination Date with respect to a termination pursuant to
Article 5 of the Lease and (c) the Final Payment Date with respect to a
termination pursuant to Article 22 of the Lease.
"Redemption Price", when used with respect to any Note or
portion thereof to be redeemed, shall mean the price at which such Note or
portion thereof is to be redeemed, determined as of the applicable Redemption
Date pursuant to Section 6.1 of this Note Indenture.
"Remainder Purchaser" shall mean FGHK, Ltd., A Wyoming Limited
Liability Company, its successors and assigns.
"Renewal Term" shall mean the renewal terms provided for in
Article 9 of the Lease.
"Rent" shall mean Basic Rent and Additional Rent.
"Residual Bonds" shall mean any of the Series AR Bonds, Series
BR Bonds or Series CR Bonds issued pursuant to the Bond Indenture.
"Responsible Officer" shall mean, with respect to the subject
matter of any representation, warranty, covenant, agreement or obligation of
any party contained in any Operative Document, the President, or any Vice
President, Assistant Vice President, Treasurer, Assistant Treasurer or other
officer who in the normal performance of his operational responsibility would
have knowledge of such matter and the requirements with respect thereto.
"Securities Act" shall mean the Securities Act of 1933, as
amended and as the same may be further amended, or any comparable successor
Applicable Law.
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"Series A Note" shall mean the note of even date herewith
given by the Owner Trustee to the Issuer in the original principal sum of
$______________ which bears interest at the Series A Rate (as such term is
defined in the Series A Note), issued in replacement of the Series X Note.
"Series B Note" shall mean the note of even date herewith
given by the Owner Trustee to the Issuer in the original principal sum of
$______________ which bears interest at the Series B Rate (as such term is
defined in the Series B Note), issued in replacement of the Series Y Note.
"Series C Note" shall mean the note of even date herewith
given by the Owner Trustee to the Issuer in the original principal sum of
$______________ which bears interest at the Series C Rate (as such term is
defined in the Series C Note), issued in replacement of the Series Z Note.
"Series X Note" shall mean the note designated as the Series X
Note dated as of December 15, 1993 in the principal amount of $______ issued by
the Owner Trustee pursuant to the Original Note Indenture.
"Series Y Note" shall mean the note designated as the Series Y
Note dated as of December 15, 1993 in the principal amount of $______ issued by
the Owner Trustee pursuant to the Original Note Indenture.
"Series Z Note" shall mean the note designated as the Series Z
Note dated as of December 15, 1993 in the principal amount of $______ issued by
the Owner Trustee pursuant to the Original Note Indenture.
"Sinking Fund" shall mean, with respect to any series of
Notes, the sinking fund provided for such series.
"Sinking Fund Payment" shall mean the payments of principal
that shall be due and payable commencing with the first payment on July 1,
1994, in accordance with the terms set out in the Note.
"Stated Maturity", when used with respect to any Note, shall
mean the date specified in such Note as the fixed date on which the principal
of such Note is due and payable.
"Successor Landlord" shall have the meaning set forth in
Section 8.12 of the Note Indenture.
"Supplemental Note Indenture" shall mean a supplement to the
Note Indenture.
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"Tax Indemnification Agreement" shall mean the Tax
Indemnification Agreement dated as of the date hereof, between Kmart and the
Owner Participant, as the same may be amended, modified or supplemented from
time to time in accordance with the provisions thereof.
"Termination Date" shall mean the date determined pursuant to
Article 5 of the Lease.
"Termination Value" shall mean the Termination Value as set
forth in Exhibit D to the Lease.
"Treasury Constant Maturity Yield Index" shall mean the
average yield for "This Week" as reported by the Federal Reserve Board in
Federal Reserve Statistical Release H.15(519) (or, if such Statistical Release
is no longer published, any publicly available source of similar market data).
"Trust" shall mean the trust created by the Trust Agreement.
"Trust Agreement" shall mean the Trust Agreement [(1993-__)]
dated as of December 15, 1993, between the Owner Participant named therein and
[Shawmut Bank Connecticut, National Association,] [Society National Bank,]
substantially in the form of Exhibit M to the Purchase Agreement, as the same
may be amended, modified or supplemented from time to time in accordance with
the provisions thereof and of the Note Indenture and the Purchase Agreement.
"Trust Estate" shall have the meaning set forth in Article I
of the Trust Agreement.
"Trust Indenture Act" shall mean the Trust Indenture Act of
1939, as amended and as the same may be further amended, or any comparable
successor Applicable Law.
"Trustee Expenses" shall have the meaning set forth in Article
3 of the Lease.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in any applicable jurisdiction.
A-13
<PAGE> 84
EXHIBIT N
THIS SECURITY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.
SERIES [A][B][C] NOTE
_______________
No.
$ As of , 1994
FOR VALUE RECEIVED, the undersigned (the "Owner Trustee"), promises to pay to
FGHK, Inc. ("Payee"), or its order, in lawful money of the United States of
America, at its principal office at ,
or at such other place as Payee may direct, the aggregate principal amount of
Dollars (the "Loan Amount"), together with interest at the
rate of % per annum (the "Series [A][B][C] Rate") on the principal balance
thereof from the date hereof until paid, to be paid in installments as follows:
1. On each Rent Payment Date, as defined in the Lease, other than
the first Rent Payment Date, a payment of interest at the
Series [A][B][C] Rate from and including the prior Rent
Payment Date to but excluding such Rent Payment Date, and in
the case of the first Rent Payment Date, a payment of interest
at the Series [A][B][C] Rate from and including the Closing
Date to but excluding the first Rent Payment Date, together
with a payment of principal, if any, in the amount set forth
on the amortization schedule attached hereto as Schedule A;
2. The outstanding principal balance, together with all interest
due thereon and all other sums due under this Note shall be
due and payable hereunder on [ ] 1, [ ] (the "Series
[A][B][C] Maturity Date").
N-1
<PAGE> 85
Interest shall be computed on the basis of a 360-day year consisting
of 12 months of 30 days each. Each and every payment (a "Payment") made by the
Owner Trustee to the Payee in accordance with the terms of this Note,
including, without limitation, all payments of interest, principal and premium,
if any, shall be applied first, to all interest which becomes due and payable
pursuant to the terms hereof on or prior to the date the Payment is received
and second, towards the reduction of the principal sum outstanding hereunder.
If any payment shall not be paid on the date such payment is due, the
same shall thereafter be payable with interest thereon at the rate of 1% over
the Series [A][B][C] Rate (or at the maximum permitted by law, whichever is the
lower) from such date to the date of payment thereof.
This Note has been issued under and pursuant to, and secured by, among
other things, (a) a trust indenture, assignment of lease and rents and security
agreement (the "Note Indenture"), dated as of the date hereof, between the
Owner Trustee to The Bank of New York, as trustee (the "Note Trustee"), for the
benefit of the Payee, constituting a first lien on the Trust Estate set forth
in the Note Indenture and (b) a mortgage from the Owner Trustee to the Note
Trustee for the benefit of the Payee, constituting a first lien on real
property, consisting of land and the buildings and improvements thereon located
in the County of , State of (the "Mortgaged Property").
Reference is made to such documents for a description of the nature and extent
of the security afforded thereby, the rights of the holder hereof in respect of
such security and the terms and conditions upon which this Note is secured.
The holder of this Note is entitled to the benefits of the Note Indenture and
the Mortgage and may enforce the agreements of the Owner Trustee contained
therein and exercise the remedies provided therein or otherwise in respect
thereof, all in accordance with the terms thereof. The provisions of the Note
Indenture, in conjunction with this Note, define the relationship between the
holder hereof and the Owner Trustee, and such provisions establish benefits and
binding obligations on both that are not set forth herein.
This Note is subject to redemption, in whole or in part, in certain
cases as provided in the Note Indenture.
Upon termination of the Lease pursuant to Article 5, 18 or 22 thereof
without the consent of the Bond Trustee, each Outstanding Note shall be
redeemed in whole at a Redemption Price equal to the unpaid principal amount
thereof together with accrued but unpaid interest thereon to, but not
including, the applicable Redemption Date plus the Make-Whole Premium.
N-2
<PAGE> 86
Make-Whole Premium shall mean the sum of the make-whole premiums on
all outstanding Notes being redeemed. The make-whole premium, if any, on any
Note shall mean an amount equal to the positive difference, as of the date of
determination, between (a) the present value of all future payments of
principal and interest, including any principal amount due at maturity,
discounted semi-annually at an interest rate per annum equal to (i) the average
yield for "This Week", as provided in the Treasury Constant Maturity Yield
Index published by the Federal Reserve Bank of New York in the Federal Reserve
Statistical Release designated "H.15(519) Selected Interest Rates", or a
successor publication, published next preceding two business days prior to
redemption, for instruments having a maturity corresponding to the Average Life
of such Note (the "TCMYI") plus (ii) 50 basis points, and (b) the outstanding
principal amount of such Note to be redeemed; provided, however, that if there
is no TCMYI for instruments having a maturity corresponding to the Average Life
of such Note, then the TCMYI shall equal the straight-line interpolation
between the interest rates on the two respective Treasury issues greater and
lesser, most closely approximating the Average Life of the Note (rounded to the
fourth decimal place); and provided further that if the Average Life of such
Note is less than one year, the one-year TCMYI shall be used.
If an Event of Default, as defined in the Note Indenture, shall occur,
the unpaid balance of the principal of this Note may be declared due and
payable in the manner and with the effect provided in the Note Indenture.
The Owner Trustee hereby waives presentment for payment, demand,
protest, notice of protest or other notice of dishonor and any right to cure
(except pursuant to Section 8.10 of the Note Indenture) as may be permitted by
law.
Subject to the provisions of the Note Indenture, the remedies of Payee
as provided in the Note Indenture shall be cumulative and concurrent and may be
pursued successively or concurrently against the Owner Trustee and/or the
collateral securing this Note, to the extent set forth in the Note Indenture.
No failure on the part of Payee in exercising any right or remedy hereunder or
under the Note Indenture shall operate as a waiver or release thereof, nor
shall any single or partial exercise of any such right or remedy preclude any
other future exercise thereof or the exercise of any other right or remedy
hereunder.
No modification or waiver of any provision of this Note shall be
effective unless the same shall be in writing signed by the party against which
enforcement of such modification or waiver is sought.
N-3
<PAGE> 87
If any of the provisions of the Note Indenture or this Note shall
require, or be deemed or adjudicated to require, the payment, or to permit the
collection, of interest in excess of the maximum amount permitted by law, the
Owner Trustee shall not be obligated to pay, nor shall Payee be permitted to
collect, interest in excess of the amount permitted by law, and the provisions
of this sentence shall supersede any conflicting provisions contained herein or
in the Note Indenture.
Notwithstanding (a) the various covenants, agreements and undertakings
of the Owner Trustee contained in this Note or in the Note Indenture and (b)
any other provisions to the contrary contained herein or therein, no recourse
shall be had for the payment of any principal, interest or premium claim based
hereon or thereon or otherwise in respect of this Note, the Note Indenture or
the Mortgage or for any claim based hereon or thereon, or otherwise in respect
hereof or thereof, or securing the payment of the indebtedness evidenced by
this Note, against either (a) the Owner Trustee or its successors or assigns or
(b) any present or future beneficial interest holder, shareholder, director,
officer, employee, incorporator, individual or partner, general or limited, of
the Owner Trustee, in any such case, under any rule of law, statute or
otherwise, or by the enforcement of any assessment, penalty or deficiency
judgment, it being expressly understood that all such liability of (i) the
Owner Trustee and its successors or assigns and (ii) any present or future
beneficial interest holder, shareholder, director, officer, employee,
incorporator, individual or partner, general or limited, of the Owner Trustee,
in each case, is hereby expressly waived and released as a condition of, and as
consideration for the execution of this Note, the Note Indenture and the
Mortgage; provided, however, that this provision shall not (a) impair in any
way the effectiveness of this Note, the Note Indenture or the Mortgage, (b)
prevent the failure to make any payment in respect of the indebtedness
evidenced by this Note from being a default under the Note Indenture or this
Note, except as otherwise provided in the Note Indenture, (c) prevent recourse
to (but solely to) the Note Indenture Estate or any part thereof and any
proceeds thereof subject to the Lessee's rights under the Lease, including but
not limited to rents, issues and profits therefrom or any bank accounts or
other tangible or intangible assets into which said rents, issues and profits
are readily identifiable or (d) limit the right of any person to name the Owner
Trustee, its successors or assigns, or any transferee of any interest in the
Note Indenture Estate as a party defendant in any action or suit for a judicial
foreclosure of or in the exercise of any other remedy under this Note or under
the Note Indenture, so long as no judgment in the nature of a deficiency
judgment or otherwise shall be asked for or (if obtained) enforced against the
Owner Trustee or such transferee.
N-4
<PAGE> 88
By acceptance of this Note, Payee waives and releases from liability
for any obligations of the Owner Trustee under this Note, the Note Indenture or
for any claim based on, or in respect of or by reason of such obligations or
their creation, each director, officer, manager, employee, member or
stockholder, as such, of Kmart, FGHK, Inc., FGHK, Ltd., A Wyoming Limited
Liability Company, the Owner Trustee or the Owner Participant as the case may
be, or any Affiliate of the foregoing.
If any term or provision of this Note shall be held to be invalid,
illegal or unenforceable, the validity of the other terms and provisions hereof
shall in no way be affected thereby.
This Note shall be governed by and construed in accordance with the
laws of the State of New York, without reference to the choice-of-law doctrine
thereof.
All capitalized terms not defined herein shall have the same meaning
as set forth in the Note Indenture.
The terms, covenants and conditions of the Note Indenture, including,
without limitation, those of Article 12 thereof which provide for the
substitution of property which is security for the debt evidenced hereby, are
hereby incorporated by reference as if such terms, covenants and conditions
were fully restated herein.
IN WITNESS WHEREOF, the Owner Trustee has caused this Note to be
executed by its duly authorized officers.
[SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION] [SOCIETY NATIONAL
BANK], not in its individual capacity but solely as Owner Trustee
under the Trust Agreement
By:___________________________
Authorized Signatory
N-5
<PAGE> 89
NOTE TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred
to in the within-mentioned Note Indenture
THE BANK OF NEW YORK,
not in its individual
capacity but solely as
Note Trustee under the Note
Indenture
By:___________________________
Authorized Signatory
N-6
<PAGE> 1
________________________________________________________________
MORTGAGE
AND
SECURITY AGREEMENT
BY
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
not in its individual capacity but solely as
Owner Trustee
TO
THE BANK OF NEW YORK,
as Note Trustee
________________________________________________________________
Prepared by and upon Recordation Return to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60604
Attention: Andrew H. Connor, Esq.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
ARTICLE PAGE
- ------- ----
<S> <C>
I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
II The Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
III Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
IV Remedies in Case of Event of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
V Authorization to Execute Instruments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
VI Title Upon Sale: Receipt of Sufficient Discharge
to Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VII Purchase of the Property by the Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
VIII Sale a Bar Against the Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
IX Waiver of Appraisement, Valuation, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
X Appointment of Receiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
XI Possession, Management and Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
XII Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XIII Remedies, etc., Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XIV No Waiver, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XV Performance by Kmart as Lessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
XVI Right of Beneficiary to Perform Covenants, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
XVII Additional Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
XVIII Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
XIX Terms Subject to Applicable Law; Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
XX Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
XXI No Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
XXII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C> <C>
XXIII Substitution of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
XXIV Transfer of the Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
XXV Terms Subject to Note Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
XXVI Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
ii
<PAGE> 4
MORTGAGE AND SECURITY AGREEMENT
MORTGAGE AND SECURITY AGREEMENT (this "Mortgage"), dated as of December 15,
1993, from the party set forth as the Owner Trustee on the signature page
hereof (the "Owner Trustee"), having its principal office at 777 Main Street,
Hartford, Connecticut 06115, to The Bank of New York, as Note Trustee pursuant
to the Note Indenture (the "Beneficiary") having an address at 101 Barclay
Street, New York, New York 10286, for the benefit of any Noteholder.
W I T N E S S E T H :
TO SECURE the payment of an indebtedness in the principal sum of Six Million
Two Hundred Fifty-Seven Thousand Seven Hundred Thirty-Seven Dollars
($6,257,737) in lawful money of the United States of America, to be paid with
interest according to the terms of the Series X Note, Series Y Note and Series
Z Note dated as of the date hereof in the aggregate principal sum of $6,257,737
(the "Loan Amount"), given by the Owner Trustee to the Noteholders
(individually, the "Series X Note", the "Series Y Note" and the "Series Z Note"
and collectively, the "Notes") and all other obligations, liabilities or sums
due or to become due under this Mortgage, the Note Indenture or the Notes, as
hereinafter defined, including, without limitation, interest on said
obligations, liabilities or sums, and, any premium due hereunder, and the
performance of all other covenants, obligations and agreements contained
herein;
NOW, THEREFORE, THIS MORTGAGE WITNESSETH, that in consideration of the
aforesaid indebtedness and the trust referred to and created below, the Owner
Trustee hereby irrevocably mortgages, grants, bargains and sells, conveys and
confirms unto the Beneficiary and its successors and assigns its and the Owner
Participant's entire right, title and interest in and to the following property
and rights now owned or held or hereafter acquired by the Owner Trustee or the
Owner Participant (collectively, the "Property"):
a. the parcel of land more particularly described in Exhibit A (the
"Land"),
b. all buildings, structures and other improvements presently situated,
or hereafter constructed, on the Land (collectively, the "Improvements");
c. all easements, rights and appurtenances relating to either the Land
or the Improvements; and
<PAGE> 5
d. all equipment, machinery, fixtures, and other items of property,
including all components thereof, now or hereafter located in, on or used in
connection with, the Improvements or necessary to the operation or
maintenance thereof, which are now or hereafter owned by the Owner Trustee,
including, without limitation, all furnaces, boilers, heaters, electrical
equipment, heating, plumbing, refrigerating, ventilating, waste-disposal,
air-cooling and air-conditioning apparatus, sprinkler systems and fire and
theft protection equipment and which are hereby deemed by the parties hereto
to constitute real estate under the laws of the State, together with all
replacements, modifications, alterations and additions thereto
(collectively, the "Fixtures"), in which the Owner Trustee further grants to
the Beneficiary a security interest. The term "Fixtures" shall not include
(nor shall any of the proceeds of the sale of the Notes be utilized to pay
the cost of), however, any of the machinery, equipment, tenant improvements
and trade fixtures, furniture, furnishings and other personal property
installed by lessees or occupants in, on, or about the Property;
e. all proceeds of any insurance policies covering the Improvements or
the Fixtures, including, without limitation, the right to receive and apply
the proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damages to the Land, the Improvements, or the Fixtures; and
f. all awards or payments which may heretofore or hereafter be made
with respect to the Land, the Improvements or the Fixtures to the extent
actually received by the Owner Trustee from the exercise of the right of
eminent domain or for any injury to or decrease in the value of the Land,
the Improvements or the Fixtures;
SUBJECT, HOWEVER, to the Lease, to Kmart's rights as lessee under the Lease and
to the other Permitted Liens, if any, and excluding all Excepted Payments and
Excepted Rights.
TO HAVE AND TO HOLD the Property unto the Beneficiary and its successors and
assigns, forever.
PROVIDED ALWAYS, that if the Owner Trustee shall well and truly pay to the
Note Trustee for the benefit of the Noteholders the debt secured hereby at the
time and in the manner provided in the Notes, the Note Indenture and this
Mortgage then these presents and the estate hereby granted shall cease and be
void.
2
<PAGE> 6
This Mortgage is (a) a mortgage of real property and (b) a security
agreement covering the Fixtures under the State Uniform Commercial Code. Upon
the occurrence of an Event of Default hereunder the Beneficiary shall, in
addition to other rights and remedies granted to it, have all the rights granted
to secured parties pursuant to the State Uniform Commercial Code.
The Owner Trustee, for itself and for its successors and assigns,
covenants and agrees with the Beneficiary, as follows:
ARTICLE I.
A. Definitions. As used in this Mortgage, the following capitalized
terms have the respective meanings set forth after them:
Beneficiary - The Bank of New York, a New York banking corporation, not
in its individual capacity, but solely as trustee under the Note Indenture,
its successors and assigns, for the benefit of any Noteholder.
Default - Any condition or event which constitutes an Event of Default
hereunder either with or without notice or lapse of time, or both.
Delinquent Rate - with respect to each Note, 1% per annum over the
interest rate of such Note.
Excepted Payments - As defined in the Note Indenture.
Excepted Rights - As defined in the Note Indenture.
Event of Default - As defined in Article III hereof.
Fixtures - As defined in the granting clause hereof.
Improvements - As defined in the granting clause hereof.
Kmart - Kmart Corporation, a Michigan corporation, its successors and
assigns.
Land - As defined in the granting clause hereof.
Lease - A lease of the Land, Improvements, Fixtures and easements
appurtenant thereto, of even date herewith, between the Owner Trustee, as
lessor, and Kmart, as lessee, as at the time supplemented or amended.
3
<PAGE> 7
Loan Amount - Has the meaning set forth in the Securing clause hereof.
Maturity Date - December 31, 2018.
Mortgage - This Mortgage and Security Agreement.
Note Indenture - That certain Trust Indenture, Assignment of Leases and
Rents and Security Agreement of even date herewith by and between the Owner
Trustee and the Note Trustee pursuant to which the Notes were issued.
Note Trustee - The Bank of New York, in its capacity as trustee under the
Note Indenture.
Noteholders - The holders of the Notes, their successors and assigns.
Notes - As defined in the securing clause hereof.
Owner Participant - RETRAM, Inc., a Delaware corporation, its successors and
assigns having an address at 1300 Indian Wood Circle, Maumee, Ohio 43537.
Owner Trustee - Shawmut Bank Connecticut, National Association, a national
banking association, not in its individual capacity but solely in its capacity
as trustee under the Trust Agreement, its successors and assigns.
Permitted Liens - As defined in Article 19 of the Lease.
Property - As defined in the granting clause hereof.
Purchase Agreement - That certain Agreement for Sale of Real Estate dated
of even date herewith, among Kmart, the Owner Participant, the Remainder
Purchaser, the Owner Trustee and certain other parties.
Remainder Purchaser - FGHK, Ltd., A Wyoming Limited-Liability Company, its
successors and assigns.
Rent Payment Date - As defined in the Lease.
Series X Note - The Series X Note of even date herewith given by the Owner
Trustee.
Series Y Note - The Series Y Note of even date herewith given by the Owner
Trustee.
Series Z Note - The Series Z Note of even date herewith given by the Owner
Trustee.
4
<PAGE> 8
State - The state of the United States of America in which the Land is
located.
Substitute Assignment - As defined in Article XXIII hereof.
Substitute Mortgage - As defined in Article XXIII hereof.
Substitute Mortgaged Property - As defined in Article XXIII hereof.
Substitute Property - As defined in Article XXIII hereof.
Transfer - A sale, transfer or conveyance shall be deemed to include: (a)
an installment sales agreement wherein the Owner Trustee agrees to sell the
Property or any part thereof; (b) an agreement by the Owner Trustee leasing all
or a substantial part of the Property, other than pursuant to the terms of the
Lease, or a sale, assignment or other transfer of, or the grant of a security
interest in, the Owner Trustee's right, title and interest in and to the Lease
or the rent payable under the Lease (other than Permitted Liens of the type
described in clause (a) of the definition thereof); and (c) any transfer, sale
or conveyance which is not permitted by the terms of the Purchase Agreement.
Trust Agreement - The Trust Agreement dated as of the date hereof between
the Owner Trustee and the Owner Participant.
ARTICLE II.
2. The Notes.
2.1. Payment of the Notes. The Owner Trustee shall duly and
punctually pay, or cause to be paid, the principal of, the interest due on and
premium, if any, on the Notes in accordance with their terms. All payments
shall be made in accordance with the terms of the Note Indenture.
2.2. Prepayment of the Notes. The Notes shall be subject to
prepayment on any Rent Payment Date only as set forth in Article 6 of the Note
Indenture.
ARTICLE III.
3. Events of Default. An Event of Default under the Note Indenture for
which an accelerating Noteholder shall be
5
<PAGE> 9
entitled to exercise remedies pursuant to Section 8.3 of the Note Indenture
shall constitute an "Event of Default" hereunder.
ARTICLE IV.
4. Remedies in Case of Event of Default. Subject to the terms and
conditions of the Note Indenture, if an Event of Default shall have occurred,
the Beneficiary may proceed by suit or suits at law or in equity or by any
other appropriate remedy to protect and enforce its rights hereunder, whether
for the specific performance of any covenant or agreement contained herein, or
for an injunction against the violation of any of the terms hereof, or in aid
of the exercise of any right, power or remedy available to the Beneficiary, or
to enforce the payment of the Notes, or to foreclose the lien of this Mortgage
as against all or any part of the Property and to have all or any part of the
Property sold, in any manner permitted by law, under the judgment or decree of
a court or courts of competent jurisdiction, or otherwise, in all cases subject
to the rights of the lessee under the Lease, provided no Event of Default under
the Lease has occurred and is continuing. All rights of action under this
Mortgage or in respect of the Notes may, if permitted by the Note Indenture and
applicable law, be enforced by the Beneficiary without the possession of the
Notes and without the production of the Notes or this Mortgage at any trial or
other proceeding relative thereto. Any recovery or judgment in any such suit
or proceeding shall be for the benefit of the Beneficiary. All costs and
expenses (including, without limitation, reasonable attorneys' fees) incurred
by the Beneficiary in connection with any such suit or proceeding, together
with interest thereon (to the extent permitted by law) computed at the
Delinquent Rate (or the maximum rate permitted by law, whichever is the lower)
from the date on which such costs or expenses are incurred to the date of
payment thereof, shall constitute additional indebtedness secured by this
Mortgage and shall be paid by the Owner Trustee to the Beneficiary on demand.
ARTICLE V.
5. Authorization to Execute Instruments, etc. The Owner Trustee
irrevocably appoints the Beneficiary as its true and lawful attorney, which
appointment is coupled with an interest and is irrevocable, in the Owner
Trustee's name and stead and on its behalf, for the purpose of (a) executing on
behalf of the Owner Trustee and filing continuation statements and any
necessary amendments to all financing statements naming the Beneficiary as a
secured party filed under any applicable Uniform Commercial Code and (b) if the
Beneficiary is entitled to exercise remedies pursuant to Article IV hereof,
effectuating any sale, assignment, transfer or delivery of the Property or any
6
<PAGE> 10
part thereof or any interest therein for the enforcement of this Mortgage
whether pursuant to foreclosure, power of sale or otherwise.
ARTICLE VI.
6. Title Upon Sale: Receipt of Sufficient Discharge to Purchaser. Upon
the sale of the Property or of any part thereof or of any interest therein
pursuant to Article IV hereof, whether pursuant to foreclosure, power of sale
or otherwise, the purchaser shall acquire good title thereto, free of the lien
of this Mortgage and free of all rights of redemption, whether statutory,
equitable or otherwise, in the Owner Trustee to the extent permitted by
applicable law, but subject to the rights of the lessee under the Lease. The
receipt of the officer making the sale under judicial proceedings or of the
Beneficiary shall be sufficient discharge to the purchaser for the purchase
money, and such purchaser shall not be obligated to see to the application
thereof.
ARTICLE VII.
7. Purchase of the Property by the Beneficiary. The Beneficiary may be a
purchaser of the Property or any part thereof or any interest therein at any
sale thereof, whether pursuant to foreclosure, power of sale or otherwise, and
may apply the indebtedness secured hereby to the purchase price.
ARTICLE VIII.
8. Sale a Bar Against the Owner Trustee. The sale of the Property or any
part thereof or any interest therein, whether pursuant to foreclosure, power of
sale or otherwise under this Mortgage shall forever bar any claim with respect
thereto by the Owner Trustee.
ARTICLE IX.
9. Waiver of Appraisement, Valuation, etc. The Owner Trustee hereby
waives, to the full extent it may lawfully do so, the benefit of all
appraisement, valuation, stay, moratorium, statute of limitations, exemption
from execution, extension and redemption laws now or hereafter in force and all
rights of marshalling in the event of the sale of the Property or any part
thereof or any interest therein. The Owner Trustee also hereby waives all
errors, defects and imperfections in any proceeding instituted by the
Beneficiary under this Mortgage.
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ARTICLE X.
10. Appointment of Receiver. If the Beneficiary is entitled to exercise
remedies under Article IV hereof, the Beneficiary shall, as a matter of right,
be entitled, ex parte and without notice, or otherwise as may be permitted by
law, to the appointment of a receiver or receivers of the Property or any part
thereof, whether such receivership be incidental to a proposed sale thereof or
otherwise, and the Owner Trustee hereby consents to the appointment of such a
receiver or receivers and will not oppose any such appointment.
ARTICLE XI.
11. Possession, Management and Income. If the Beneficiary is entitled to
exercise remedies under Article IV hereof, the Beneficiary, subject to any
existing or prior rights of the lessee under the Lease and the rights of the
Owner Trustee under the Note Indenture, without further notice, may enter upon
and may take possession of the Property or any part thereof, in any manner
permitted by law, by reasonable force, summary proceedings, ejectment or
otherwise and may remove the Owner Trustee and all other persons and any and
all property therefrom, and may hold, operate and manage the same, make all
necessary or proper repairs, renewals, and replacements, and useful
alterations, additions, betterments and improvements thereto and thereon as may
seem advisable to the Beneficiary, and insure and reinsure the Property as may
seem advisable to the Beneficiary, and may receive all earnings, income, rents,
issues and proceeds accruing with respect thereto. The Beneficiary shall not
be under any liability for or by reason of any such taking of possession,
entry, removal or holding, operating or management. Any amounts so received by
the Beneficiary shall be applied (a) to pay (i) the expenses of operating the
Property and of all maintenance, repairs, renewals, replacements, alterations,
additions, betterments, improvements, taxes, assessments, insurance premiums,
reasonable compensation for the services of all attorneys, advisors, brokers,
receivers, agents and other employees engaged or employed by it or by the
Beneficiary and all other costs and expenses of entering a bond and taking
possession of and holding the Property, and (ii) any lien prior to the lien of
this Mortgage which the Beneficiary may consider it necessary or desirable to
discharge and then (b) in the manner provided in Article XII.
ARTICLE XII.
12. Application of Proceeds. The proceeds of (a) the operation and
management of the Property pursuant to Article XI hereof (after application in
accordance with clause (a) of
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Article XI hereof), (b) any sale of the Property or any interest therein,
whether pursuant to foreclosure, power of sale or otherwise, and (c) any
insurance policies or condemnation awards or any other sums retained by the
Beneficiary upon the occurrence of an Event of Default hereunder, shall be
applied pursuant to the Note Indenture.
ARTICLE XIII.
13. Remedies, etc., Cumulative. Each legal, equitable or contractual
right, power or remedy of the Beneficiary now or hereafter provided herein or
by statute or otherwise shall be cumulative and concurrent and shall be in
addition to every other right, power and remedy, and the exercise or beginning
of the exercise by the Beneficiary of any one or more of such rights, powers
and remedies shall not preclude the simultaneous or later exercise of any or
all such other rights, powers and remedies.
ARTICLE XIV.
14. No Waiver, etc. No failure by the Beneficiary to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach hereof shall constitute a waiver of any such term or
of any such breach. Subject to the provisions of Section 8.10 of the Note
Indenture, no acceptance of the payment of any sums due on the Notes during the
continuance of any Default shall constitute a waiver thereof. No waiver of any
breach shall affect or alter this Mortgage which shall continue in full force
and effect with respect to any other then-existing or subsequent breach.
ARTICLE XV.
15. Performance by the Lessee. Compliance by the lessee under the Lease
with any provisions of the Lease which if done by the Owner Trustee would
constitute compliance with provisions of this Mortgage shall be deemed
compliance by the Owner Trustee with such provisions hereof. Performance by
any lessee under the Lease of any of the Owner Trustee's obligations hereunder,
whether or not pursuant to the Lease, shall be the equivalent of the Owner
Trustee's performance thereof.
ARTICLE XVI.
16. Right of Beneficiary to Perform Covenants, etc. If the Owner Trustee
shall fail to make any payment or to perform any act required to be made or
performed hereunder and such failure shall not be cured within the applicable
grace period, if
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any, the Beneficiary, without notice to or demand upon the Owner Trustee,
subject to the lessee's rights under the Lease, may (but shall be under no
obligation to) at any time thereafter make such payment or perform such act for
the account and at the expense of the Owner Trustee and may enter upon the
Property or any part thereof for such purpose and take all such action thereon
as, in the Beneficiary's opinion, may be necessary or appropriate therefor. No
such entry shall be deemed an eviction of the lessee under the Lease. All sums
so paid by the Beneficiary and all costs and expenses (including, without
limitation, attorneys' fees and expenses) so incurred, together with a late
charge thereon at the Delinquent Rate (or at the maximum rate permitted by law,
whichever is the lower) from the date of payment or incurring, shall constitute
additional indebtedness secured by this Mortgage and shall be paid by the Owner
Trustee to the Beneficiary on demand.
ARTICLE XVII.
17. Additional Instruments. The Owner Trustee, at its expense, will
execute, acknowledge, secure and deliver all such instruments and take all such
action as the Beneficiary from time to time may reasonably request for the
better assuring of the properties and rights now or hereafter subjected to the
security of this Mortgage or intended so to be.
ARTICLE XVIII.
18. Defeasance. This Mortgage and the lien created hereby shall terminate
after (a) the payment in full of (i) the principal of, interest due on and
premium, if any, on the Notes, and (ii) all other sums secured hereby or (b)
deposit with the Note Trustee of all sums to be deposited pursuant to Section
3.1(c) of the Note Indenture. Upon such termination, the Beneficiary, at the
Owner Trustee's expense, shall execute and deliver such instruments of release,
satisfaction and termination in proper form for recording or filing, as may be
appropriate to evidence the release of (i) the Property from the lien created
hereby and (ii) any other security held by the Beneficiary and such
satisfaction and termination, and such instruments, when duly executed,
recorded and filed, shall conclusively evidence the release, satisfaction and
termination of this Mortgage. Upon written request, the Beneficiary shall give
or cause to be given to the then lessee under the Lease notice of such
termination, release and satisfaction.
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ARTICLE XIX.
19. Terms Subject to Applicable Law; Separability. All rights, powers and
remedies provided herein may be exercised only to the extent that the exercise
thereof does not violate any applicable law, and are intended to be limited to
the extent necessary so that they will not render this Mortgage invalid,
unenforceable or not entitled to be recorded, registered or filed under any
applicable law. If any term or provision of this Mortgage shall be held to be
invalid, illegal or unenforceable, the validity of the other terms and
provisions hereof shall in no way be affected thereby, and in the place of such
invalid, illegal or unenforceable term or provision, there shall be substituted
a like, but valid, enforceable and legal provision which comports to the
findings of the court so holding and most nearly accomplishes the original
intention of the parties.
ARTICLE XX.
20. Notices. All notices and other communications to the parties hereunder
shall be in writing, and delivered in the manner and to the addresses set forth
for such parties in the Note Indenture.
ARTICLE XXI.
21. No Recourse. Notwithstanding (a) the various covenants, agreements and
undertakings of the Owner Trustee contained in the Notes or in this Mortgage
and (b) any other provisions to the contrary contained herein or in the Notes,
no recourse shall be had for the payment of the principal of, interest due on
or premium, if any, on or in respect of this Mortgage, the Note Indenture, or
the Notes, or any other indebtedness evidenced thereby, or for any claim based
hereon or thereon or otherwise in respect hereof or thereof, or based on or in
respect of this Mortgage, the Note Indenture or the Notes or any other
instruments securing the payment of the indebtedness evidenced by the Notes,
against either (a) the Owner Trustee, its successors or assigns, (b) Shawmut
Bank Connecticut, National Association (or any entity acting as successor
trustee, co-trustee or separate trustee under the Trust Agreement) or (c) any
present or future shareholder, director, officer, employee, incorporator,
individual or partner, general or limited, of the Owner Trustee, in any such
case, under any rule of law, statute or otherwise, or by the enforcement of any
assessment, penalty or deficiency judgment, it being expressly understood that
all such liability of (a) the Owner Trustee and its successors or assigns and
(b) any present or future shareholder, director, officer, employee,
incorporator, individual or partner, general or limited, of the Owner Trustee,
in each case, is hereby expressly
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waived and released as a condition of, and as consideration for, the execution
of this Mortgage, the Note Indenture, and the Notes; provided, however, that
this provision shall not (a) impair in any way the effectiveness of this
Mortgage, the Note Indenture or the Notes, (b) prevent the failure to make any
payment in respect of the indebtedness evidenced by the Notes from being a
default under this Mortgage, the Note Indenture or the Notes, (c) prevent
recourse to (but solely to) the Property or any part thereof and any proceeds
thereof, exclusive of any Excepted Payments, including, but not limited to,
from and after the occurrence of an Event of Default hereunder, rents, issues
and profits therefrom or any bank accounts or other tangible or intangible
assets into which said rents, issues and profits are readily identifiable or
(d) limit the right of any person to name the Owner Trustee or any transferee
of any interest in the Property as a party defendant in any action or suit for
a judicial foreclosure of or in the exercise of any other remedy under the
Notes or under this Mortgage, so long as no judgment in the nature of a
deficiency judgment shall be asked for or (if obtained) enforced against the
Owner Trustee or such transferee.
ARTICLE XXII.
22. Miscellaneous. This Mortgage (a) may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought and (b)
shall be binding upon the Owner Trustee, its successors and assigns, and all
persons claiming under or through the Owner Trustee or any such successor or
assign, and shall inure to the benefit of and be enforceable by the Beneficiary
and its successors and assigns. The headings in this Mortgage are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. If any of the provisions of this Mortgage or of the Notes
shall require, or shall be deemed or adjudicated to require, the payment, or to
permit the collection, of interest in excess of the maximum rate permitted by
law, the Owner Trustee shall not be obligated to pay, nor shall the Beneficiary
be permitted to collect, interest in excess of the amount permitted by law, and
the provisions of this sentence shall supersede any conflicting provisions
contained herein or in the Notes. This Mortgage shall be governed by and
construed in accordance with the laws of the State. This Mortgage may be
executed in any number of counterparts, each of which shall be an original, but
all of which together shall constitute one and the same instrument.
22.1. Certain Matters Relating to Property Located in the State of Florida.
With respect to a Property located in the State of Florida, notwithstanding
anything contained herein to the contrary, it is agreed that any additional sum
or sums advanced by the then holder of the Notes to or for the benefit of
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the Owner Trustee or the Owner Trustee's permitted assignees, whether such
advances are obligatory or are made at the option of the Beneficiary, or
otherwise, at any time within 20 years from the date of this Mortgage, with
interest thereon at the rate agreed upon at the time of each additional loan or
advance, shall be equally secured with and have the same priority as the Notes
and be subject to all of the terms and provisions of this Mortgage, whether or
not such additional loan or advance is evidenced by a promissory note of the
Owner Trustee and whether or not identified by a recital that it is secured by
this Mortgage; provided that the aggregate amount of outstanding debt so
secured at any one time shall not exceed the sum of $300,000,000, plus interest
and disbursements made for the payment of taxes, levies or insurance on the
Property with interest on such disbursements. It is understood and agreed that
this future advance provision shall not be construed to obligate the
Beneficiary to make any such additional loans or advances. It is further
agreed that any additional note or notes executed and delivered under this
future advance provision shall be included in the words "Note" or "Notes"
wherever either appears in the context of this Mortgage. The Owner Trustee,
for itself and its successors in title and its successors and permitted
assigns, hereby expressly waives and relinquishes any rights granted under
Section 697.04 of the Florida Statutes, or otherwise, to limit the amount of
indebtedness that may be secured by this Mortgage at any time during the term
of this Mortgage. The Owner Trustee further covenants not to file for record
any notice limiting the maximum principal amount that may be secured by this
Mortgage and agrees that any such notice, if filed, shall be null and void and,
except as hereinafter provided, of no effect. Notwithstanding the foregoing
covenant, in the event that the Owner Trustee or its successor in title files
for record any notice limiting the maximum principal amount that may be secured
by this Mortgage in violation of the foregoing covenant, the secured
indebtedness shall, at the option of the Beneficiary, become immediately due
and payable.
22.2. Certain Matters Relating to Property Located in the State of
Georgia. With respect to a Property located in the State of Georgia,
notwithstanding anything contained herein to the contrary:
(a) The "PROVIDED ALWAYS" paragraph on page 2 hereof shall be deleted
in its entirety and the following provisions shall be inserted in its place:
This Deed is intended to operate and is to be construed as a
deed passing the title to the Property to the Beneficiary and is made
under those provisions of the existing laws of the State of Georgia
relating to deeds to secure debt, and not as a mortgage, and is given
to secure the
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payment of the Notes, the final payment on which is due in accordance
with the terms of the Notes, unless otherwise extended pursuant to the
terms of the Notes, together with any and all renewals, modifications,
consolidations and extensions of the indebtedness evidenced thereby,
together with the debt, and together with any and all additional
advances made by Beneficiary to protect or preserve the Property or
the security interests created hereby on the Property, or for taxes,
assessments or insurance premiums as herein provided or for the
performance of any of the Owner Trustee's obligations hereunder or
for any other purpose provided herein (whether or not the original
Owner Trustee remains the owner of the Property at the time of such
advances).
Should the debt secured hereby be paid according to the tenor
and effect thereof when the same become due and payable, and should the
Owner Trustee perform all covenants contained in this Mortgage in a
timely manner, then this Mortgage shall be cancelled and surrendered.
(b) The term "Mortgage" as used herein shall mean this Deed as
originally executed or as it may hereafter from time to time be supplemented,
amended, modified or extended by one or more indentures supplemental hereto.
(c) If an Event of Default shall have occurred, the Beneficiary may sell
the Property or any part of the Property at one or more public sales before
the door of the courthouse of the county in which the Property or any part of
the Property is situated, to the highest bidder for cash, in order to pay the
debt, and all expenses of sale and of all proceedings in connection
therewith, including reasonable attorneys' fees, after advertising the time,
place and terms of sale once a week for four weeks immediately preceding such
sale (but without regard to the number of days) in a newspaper in which
Sheriff's sales are advertised in said county. At any such public sale, the
Beneficiary may execute and deliver to the purchaser a conveyance of the
Property or any part of the Property in fee simple, with full warranties of
title and, to this end, the Owner Trustee hereby constitutes and appoints the
Beneficiary the agent and attorney-in-fact of the Owner Trustee to make such
sale and conveyance, and thereby to divest the Owner Trustee of all right,
title and equity that the Owner Trustee may have in and to the Property and
to vest the same in the purchaser or purchasers at such sale or sales, and
all the acts and doings of said agent and attorney-in-fact are hereby
ratified and confirmed and any
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recitals in said conveyance or conveyances as to facts essential to a valid
sale shall be binding upon the Owner Trustee. The aforesaid power of sale and
agency hereby granted are coupled with an interest and are irrevocable by death
or otherwise, are granted as cumulative of the other remedies provided hereby
or by law for the collection of the debt, and shall not be exhausted by one
exercise thereof, but may be exercised until full payment of all of the debt.
In the event of any sale under this Mortgage by virtue of the exercise of the
powers herein granted, or pursuant to any order in any judicial proceedings or
otherwise, the Property may be sold as an entirety or in separate parcels and
in such manner or order as the Beneficiary, in its sole discretion, may elect,
and if the Beneficiary so elects, the Beneficiary may sell the personal
property covered by this Mortgage at one or more separate sales in any manner
permitted by the State Uniform Commercial Code, and one or more exercises of
the powers herein granted shall not extinguish nor exhaust such powers, until
the entire Property is sold or the debt is paid in full.
(d) The Owner Trustee warrants that: (a) the Owner Trustee's name,
identity or corporate or partnership or trust structure and residence or
principal place of business are as first set forth hereinabove; (b) the Owner
Trustee has been using or operating under such name, identity or corporate or
partnership or trust structure without change for less than one year; and (c)
the location of the Fixtures and equipment is upon the Property. The Owner
Trustee covenants and agrees that it will furnish the Beneficiary with notice of
any changes in the matters addressed by clause (a) or (c) of this paragraph
within 30 days of the effective date of such change and the Owner Trustee will
promptly execute any financing statements or other instruments deemed necessary
by the Beneficiary to prevent any filed financing statement from becoming
misleading or losing its perfected status.
The information contained in this paragraph is provided in order that this
Mortgage shall comply with the requirements of the State Uniform Commercial Code
for instruments to be filed as financing statements. The name of the "Debtor"
and the "Secured Party", the identity of the corporate or partnership structure
and residence or principal place of business of "Debtor", and the time period
for which "Debtor" has been using or operating under such name and identity or
corporate or partnership structure without change, and the mailing address of
the "Secured Party" from which information concerning the security interest may
be obtained, and the mailing address of "Debtor", are as set forth herein and a
statement indicating
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the types or describing the items of collateral is set forth above.
(e) As this instrument is a deed passing legal title pursuant to the laws
of the State of Georgia, and is not a mortgage, whenever reference herein is
made to the "lien of this Mortgage", or words of similar import, such words
shall be construed as meaning the security title and interest created and
conveyed by this Deed.
(f) Whenever reference is made herein to "reasonable attorneys' fees" or
similar words, such references shall mean attorneys' fees computed based upon
the attorneys' normal hourly rates and the amount of time expended, and not
the statutory attorneys' fees provided by Official Code of Georgia Annotated
Section 13-1-11.
22.3. Certain Matters Relating to Property in the State of Illinois. With
respect to a Property located in the State of Illinois, notwithstanding
anything contained herein to the contrary:
(a) COMPLIANCE WITH ILLINOIS MORTGAGE FORECLOSURE LAW.
(i) If any provision in this Mortgage is determined to be
inconsistent with any provision of the Illinois Mortgage Foreclosure Law
(Chapter 110, Paragraphs 15-1101 et seq., Illinois Revised Statutes) (the
"IMFL"), the provisions of the IMFL shall take precedence over the
provisions of this Mortgage, but shall not invalidate or render
unenforceable any other provisions of this Mortgage that can be construed
in a manner consistent with the IMFL.
(ii) If any provision of this Mortgage shall grant to the
Beneficiary any rights or remedies upon an Event of Default which are more
limited than the rights that would otherwise be vested in the Beneficiary
under the IMFL in the absence of such provision, the Beneficiary shall be
vested with the rights granted in the IMFL to the full extent permitted by
law.
(iii) Without limiting the generality of the foregoing, all
expenses incurred by the Beneficiary to the extent reimbursable under
Paragraphs 15-1510 and 15-1512 of the IMFL, whether incurred before or after
any decree or judgment of foreclosure, and whether enumerated in this
Mortgage, shall be added to the indebtedness secured by this Mortgage or by
the judgment of foreclosure.
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(iv) Without limiting the generality of the foregoing, this
Mortgage also secures all future advances made pursuant to the terms of this
Mortgage or the other Owner Trustee Documents made after this Mortgage is
recorded, including but not limited to all monies so advanced by the
Beneficiary in accordance with the terms of this Mortgage to (A) preserve or
restore the Property, (B) preserve the lien of this Mortgage or the priority
thereof or (C) enforce this Mortgage, and, to the full extent permitted by
subsection (b)(5) of Section 15-1302 of the IMFL or other law, shall be a
lien from the time this Mortgage is recorded.
(b) WAIVER OF STATUTORY RIGHTS. The Owner Trustee acknowledges that
the transaction of which this Mortgage is a part is a transaction which does
not include either agricultural real estate (as defined in Paragraph 15-1201
of the IMFL), or residential real estate (as defined in Paragraph 15-1219 of
the IMFL), and to the full extent permitted by law, voluntarily and knowingly
waives the Owner Trustee's rights to reinstatement and redemption as allowed
under Paragraph 15-1601(b) of the IMFL, and to the full extent permitted by
law, the benefits of all present and future valuation, appraisement,
homestead, exemption, stay, redemption and moratorium laws under any state or
federal law.
(c) THIS INSTRUMENT IS EFFECTIVE AND SHALL BE EFFECTIVE AS A FINANCING
STATEMENT FILED AS A FIXTURE FILING WITH RESPECT TO ALL GOODS WHICH ARE OR
ARE TO BECOME FIXTURES INCLUDED WITHIN THE Property AND IS TO BE FILED FOR
RECORD OR REGISTERED IN THE REAL ESTATE RECORDS OF IN THE COUNTY IN WHICH THE
LAND WAS LOCATED. THE ADDRESS OF THE BENEFICIARY [SECURED PARTY] AND THE
MAILING ADDRESS OF The Owner Trustee [DEBTOR] ARE SET FORTH WITHIN. A
PHOTOGRAPHIC OR OTHER REPRODUCTION OF THIS INSTRUMENT OR ANY FINANCING
STATEMENT RELATING TO THIS INSTRUMENT SHALL BE SUFFICIENT AS A FINANCING
STATEMENT.
(d) The Owner Trustee and the Beneficiary intend that this Mortgage
shall secure not only sums advanced as of the date hereof but also all
advances provided for in the Notes and in this Mortgage; provided, however,
that the maximum amount secured by this Mortgage shall in no event exceed
$300,000,000.
22.4 Certain Matters Relating to Property Located in the State of New York.
With respect to a Property located in the State of New York, notwithstanding
anything contained herein to the contrary:
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(a) The Owner Trustee represents that this Mortgage does not encumber
property principally improved or to be improved by one or more structures
containing in the aggregate not more than six residential dwelling units.
(b) Pursuant to Section 13 of the lien law of New York, the Owner Trustee
shall receive the advances secured hereby and shall hold the right to receive
such advances as a trust fund to be applied first for the purpose of paying
the cost of any improvements and shall apply such advances first to the
payment of the cost of any such improvements on the Property before using any
part of the total of the same for any other purpose.
22.5. Certain Matters Relating to Property Located in the State of Ohio.
With respect to a Property located in the State of Ohio, notwithstanding
anything contained herein to the contrary, this Mortgage shall be an Open-End
Mortgage, and the Owner Trustee and the Beneficiary intend that this Mortgage
shall secure unpaid balances of loan advances (including any advances under the
Note) made after this Mortgage is delivered to the recorder for record to the
extent that the total unpaid loan indebtedness, exclusive of interest thereon,
does not exceed the maximum amount of $300,000,000.00 which may be outstanding
at any time and from time to time.
Section 22.6 Certain Matters Relating to Property Located in Oklahoma.
With respect to the Property which is located in the State of Oklahoma,
notwithstanding anything contained herein to the contrary:
a. Without in any way limiting the other provisions of this Mortgage, but
in addition thereto and in amplification thereof, upon the occurrence of any
Event of Default which has not been waived, the Owner Trustee hereby confers
on the Beneficiary the power to sell the Property, and the interests of
persons therein, in the manner and pursuant to the procedures set forth in
the "Oklahoma Power of Sale Mortgage Foreclosure Act" (46 O.S. 40-49), as
said Act may be amended from time to time, or pursuant to other applicable
statutory or judicial authority. If no cure is effected within the statutory
time limits, the Beneficiary may accelerate the indebtedness secured hereby
without further notice (the aforementioned statutory cure period shall run
concurrently with any contractual provision for notice before acceleration of
debt) and may then proceed in the manner and subject to the conditions of the
above-referenced statutes to send to the Owner Trustee and other necessary
parties a
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notice of sale and may sell and convey the Property in accordance with the
above-referenced laws. The Beneficiary may enforce this Mortgage by
exercising said power of sale or at the Beneficiary's sole option by judicial
foreclosure proceedings as provided by law. No action of the Beneficiary
based upon the provisions contained herein or in the Oklahoma Power of Sale
Mortgage Foreclosure Act, including, without limitation, giving of the notice
of intent to foreclose by power of sale or the notice of sale, shall
constitute an election of remedies which would preclude the Beneficiary from
pursuing judicial foreclosure before or at any time after commencement of the
power of sale foreclosure procedure. If the Beneficiary institutes judicial
proceedings to enforce this Mortgage, the Owner Trustee hereby waives or does
not waive, at the sole option of the Beneficiary, appraisement of the
Property, said option to be exercised by the Beneficiary at the time judgment
is rendered or at any time prior thereto. The Owner Trustee fully
understands the consequences of conferring on the Beneficiary the
above-described power of sale, and if the Beneficiary elects to enforce this
Mortgage by exercising said power of sale, the Owner Trustee hereby expressly
waives to the fullest extent permitted by law any right to a judicial hearing
prior to the sale of the Property. As often as any proceedings may be taken
to foreclose this Mortgage, whether pursuant to the power of sale herein
conferred or by judicial proceedings, or to foreclose the security interest
herein granted to the Beneficiary, the Owner Trustee agreed to pay to the
Beneficiary, in addition to all other sums due, all costs and expenses,
including reasonable attorney fees, incurred by the Beneficiary.
Notwithstanding any provisions to the contrary contained in this Mortgage,
the Owner Trustee shall not be required to pay the Oklahoma Real Estate
Mortgage Tax to be paid upon the recording of this Mortgage as prescribed by
and levied pursuant to 68 O.S. Section Section 1901-1910; provided, however,
that the payment of said mortgage tax by the Beneficiary shall not affect
the Owner Trustee's responsibility to pay all other fees, taxes and
assessments as prescribed in this Mortgage.
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY
ALLOW THE BENEFICIARY TO TAKE THE PROPERTY AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY THE OWNER TRUSTEE UNDER THIS
MORTGAGE.
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22.7 Certain Matters Relating to Property Located in the State of Rhode
Island. With respect to a Property located in the State of Rhode Island,
notwithstanding anything contained herein to the contrary, the Owner Trustee
hereby grants the Property to the Beneficiary, WITH MORTGAGE COVENANTS, UPON
THE STATUTORY CONDITION AND WITH THE STATUTORY POWER OF SALE.
ARTICLE V.
23. Substitution of Property.
23.1. Conditions for Substitution. In the event that Kmart substitutes a
property for the Land, Improvements, Fixtures and easements appurtenant thereto
in accordance with the terms of the Lease, the Owner Trustee shall substitute
such property for the Land, Improvements, Fixtures and easements appurtenant
thereto subject to the following conditions:
(a) such substitution is made in accordance with Article 42 of the
Lease;
(b) the Owner Trustee grants a first-mortgage and security interest,
subject to Permitted Liens, in and to such substitute property (the
"Substitute Property") and the buildings, improvements, fixtures and personal
property located thereon or used in the management, maintenance or operation
thereof (collectively, the "Substitute Mortgaged Property") and the
Beneficiary simultaneously therewith spreads the lien and security interest
created by this Mortgage or grants a new mortgage to the Substitute Mortgaged
Property (this Mortgage as so spread or the new mortgage as so issued is
hereinafter referred to as the "Substitute Mortgage"). Upon the spreading of
the lien or granting of a new mortgage to the Substitute Mortgaged Property
by the Substitute Mortgage, the Property shall be released from the lien of
this Mortgage;
(c) the Substitute Mortgaged Property shall be subject to the lien of
the Note Indenture and this Mortgage;
(d) the Owner Trustee shall assign to the Beneficiary as Note Trustee
under the Note Indenture the lease executed between the Owner Trustee and
Kmart for such Substitute Mortgaged Property (the "Substitute Assignment");
(e) the Substitute Mortgage shall be in form, scope and substance
similar to this Mortgage, taking into consideration the local law, custom and
practice of the state in which the Substitute Property is located and which
shall preserve to the Beneficiary every substantive and procedural remedy
available under this Mortgage and shall
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further be executed in a manner which will not result in the cancellation of
any of the Notes; and
(f) any substitution must be consistent with the substitution
provisions of the Note Indenture.
23.2. Documentation. In connection with the Substitute Mortgage, the Owner
Trustee shall provide the Beneficiary with such other instruments and documents
which the Beneficiary in its reasonable discretion determines are necessary to
evidence or restate the indebtedness secured hereby and to perfect the lien of
the Substitute Mortgage, such documents to include, but not be limited to all
of the documents that the lessee under the Lease is required to provide under
the Lease and the following documents:
(a) such amendments to the Notes, as may be necessary to better
evidence or acknowledge the indebtedness evidenced thereby in accordance
with the local law, custom and practice in the state in which the Substitute
Property is located and in accordance with the terms of the Lease; and
(b) such other documents and evidence similar to the documents and
evidence submitted to the Beneficiary in connection with the granting of this
Mortgage.
23.3. Substitution Not to Impair Payment. The Owner Trustee covenants and
agrees that the grant of the Substitute Mortgaged Property and Substitute
Assignment shall not in any way impair the obligation of the Owner Trustee to
pay the outstanding principal amount of the Notes and to pay all other sums due
under the Notes and Note Indenture and the terms of the Notes shall not be
amended, modified or altered by any provisions contained in this Article XXIII.
23.4. Expenses. The Owner Trustee shall, or shall cause Kmart to, pay all
expenses in connection with the grant of the Substitute Mortgaged Property
including, but not limited to, the fees and disbursements of counsel to the
Beneficiary, environmental reports, appraisal fees, engineering fees, title
insurance premiums, survey charges, mortgage and documentary stamp taxes, if
any, note intangible taxes, if any, and recording charges.
ARTICLE VI.
24. Transfer of the Property. The Owner Trustee shall not Transfer the
Property or any part thereof or permit the Property or any part thereof to be
transferred except pursuant to Section 20M of the Purchase Agreement or in
connection with the
21
<PAGE> 25
appointment of a successor Owner Trustee pursuant to Section 9 of the Trust
Agreement.
ARTICLE VII.
25. Terms Subject to Note Indenture. Notwithstanding anything in this
Mortgage to the contrary, (a) the Owner Trustee shall have all rights set
forth, or reserved to it, in the Note Indenture, (b) the Beneficiary shall be
subject to all limitations and restrictions applicable to the Note Trustee
under the Note Indenture and (c) the terms set forth herein shall be subject to
the terms and conditions of the Note Indenture, and to the extent any term set
forth herein is inconsistent with the terms set forth in the Note Indenture,
the terms of the Note Indenture shall govern.
ARTICLE VIII.
26. Payment of Expenses. Notwithstanding any provision contained herein,
the Owner Trustee shall not be liable for any expense hereunder unless such
amounts are provided to the Owner Trustee by Kmart; provided, however, that the
Owner Trustee shall be obligated to demand payment of such amounts by Kmart if
Kmart is obligated to pay such amounts pursuant to the Lease.
22
<PAGE> 26
IN WITNESS WHEREOF, the Owner Trustee has caused this Mortgage to be
executed and attested by its proper officers thereunder duly authorized, as of
the day and year first above written; the Beneficiary has executed the same in
order that this Mortgage may qualify as a financing statement under the State
Uniform Commercial Code as to such of the Property, if any, as constitutes
personalty.
WITNESSED AND ATTESTED: SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, as the Owner
Trustee, not in its individual
capacity, but as Owner Trustee
pursuant to the Trust Agreement
[SEAL]
__________________________ By: _____________________________
Title: Assistant Secretary Name:
Title:
THE BANK OF NEW YORK, as Benefi-
ciary, not in its individual
capacity, but as Note Trustee
pursuant to the Note Indenture
[SEAL]
__________________________ By: _____________________________
Title: Assistant Secretary Name:
Title:
This Instrument was Prepared by
and upon Recordation Return to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60604
Attention: Andrew H. Connor, Esq.
23
<PAGE> 27
ACKNOWLEDGMENTS
STATE OF MICHIGAN )
) SS.:
COUNTY OF WAYNE )
On the ___ day of ______________, 1993, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he/she resides at
__________________________________________________________; that he/she is the
____________________ of Shawmut Bank Connecticut, National Association, the
corporation described in and which executed the foregoing instrument; and that
he/she signed his/her name thereto by authority of the board of directors of
said corporation.
_____________________________
Notary Public
STATE OF MICHIGAN )
) SS.:
COUNTY OF WAYNE )
On the ___ day of ______________, 1993, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he/she resides at
__________________________________________________________; that he/she is the
____________________ of The Bank of New York, the corporation described in and
which executed the foregoing instrument; and that he/she signed his/her name
thereto by authority of the board of directors of said corporation.
_____________________________
Notary Public
24
<PAGE> 28
EXHIBIT A
(Description of the Land)
<PAGE> 29
EXHIBIT 4.5
SCHEDULE OF MATERIALLY
DIFFERENT PROVISIONS
<TABLE>
<CAPTION>
OWNER TRUST GEOGRAPHIC
NUMBER LOCATION OF PROPERTY MATERIALLY DIFFERENT PROVISIONS
- ----------- --------------------- ---------------------------------------------------------
<S> <C> <C>
1993-1 Crescent City, CA None.
1993-2 Folsom, CA None.
1993-3 Watertown, NY None.
1993-4 Galesburg, IL None.
1993-5 Kenai, AK None.
1993-6 Fairbanks, AK None.
1993-7 Marina, CA None.
1993-8 Carmel Mt., CA None.
1993-9 Manteca, CA None.
1993-10 Fairlea, WV None.
1993-11 Lorain, OH None.
1993-12 Yuma, AZ None.
1993-13 Ft. Myers, FL None.
1993-14 San Antonio, TX None.
1993-15 Tulsa, OK None.
1993-16 Austin, TX None.
1993-17 Forest Park, GA None.
1993-18 Santee, CA None.
1993-19 Moorpark, CA None.
1993-20 Exmore, VA None.
1993-21 Tustin, CA None.
1993-22 Perris, CA None.
1993-23 Warwick, RI None.
1993-24 Sunrise, FL None.
</TABLE>
<PAGE> 1
Exhibit 4.6
BENEFICIAL INTEREST ASSIGNMENT AGREEMENT
FGHK, Inc., a New York corporation (the "Assignor"), having an address
c/o Pine Street Capital Corporation, 750 Old Hickory Boulevard, Two Brentwood
Commons, Suite 150, Brentwood, Tennessee 37027, for valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, hereby assigns and
transfers to The Bank of New York (the "Assignee"), a New York banking
corporation, having an address at 101 Barclay Street, New York, New York 10286,
as trustee for the benefit of the bondholders under and pursuant to a
Collateral Trust Indenture (the "Bond Indenture"), dated as of March __, 1994
between The Bank of New York and Assignor, the Notes (as defined in the Bond
Indenture) and all of Assignor's rights and interest, as beneficiary, in, to
and under a certain First Amended and Restated Trust Indenture, Assignment of
Lease and Rents and Security Agreement (the "Note Indenture"), dated as of the
date hereof, between [Shawmut Bank Connecticut, National Association,]
[Society National Bank] not in its individual capacity, except as expressly
provided therein, but solely as owner trustee under the Trust Agreement, dated
as of March __, 1994 (the "Owner Trustee") and The Bank of New York, as trustee
(the "Note Trustee"), including all claims, rights, powers, privileges and
remedies of the Assignor under the Note Indenture in and to the related
Mortgage which Mortgage covers and relates to land in _______ County, [State]
described in Exhibit A attached thereto and was recorded in Book ____ at Page
___ and including all rights of the Assignor under the Note Indenture to
exercise any election or option, to give or receive any notice, consent, waiver
or approval or to direct any action to be taken thereunder by the Note Trustee
all to the extent that the Assignee or Noteholder is then entitled to effect
each of such rights under the Note Indenture.
This Assignment is made as part of a pledge of the Notes issued under the
Note Indenture as collateral security for certain bonds of the Assignor
(collectively, the "Bonds") being issued under and pursuant to the Bond
Indenture.
Neither this Assignment, nor any action or inaction on the part of
Assignee shall, without the written consent of Assignee, constitute an
assumption on its part of any obligation under the Note Indenture; nor shall
Assignee have any obligation to make any payment to be made by Assignor under
the Note Indenture.
<PAGE> 2
Assignor shall have no right whatsoever to take any action under the
Note Indenture without the prior written consent of Assignee, but shall take
all such action as may from time to time be requested by Assignee to the extent
it is otherwise entitled to do so under the Note Indenture. Assignor shall,
however, remain liable to perform all of its obligations under the Note
Indenture.
Assignor covenants that so long as this Assignment shall remain in
effect it will not assign or encumber, to anyone other than Assignee, the whole
or any part of the claims and rights hereby assigned, and that it will not,
without the prior written approval of Assignee, amend, modify, release or
cancel the Note Indenture, accept the termination thereof, give any consent or
waiver to make any acceptance or rejection thereunder, or take or omit to take
any action, the taking or omission of which might result in an alteration or
impairment of the lien of such Note Indenture or this Assignment or any of the
rights created by either of such instruments.
This Assignment shall terminate, without further act, upon payment in
full of the principal of, and interest and premium, if any, on, the Bonds and
any other indebtedness secured by the Bond Indenture. Assignee, at Assignor's
sole cost and expense, will execute and deliver such instruments as Assignor may
reasonably request to further evidence such termination.
This Assignment shall be governed by and construed in accordance with
the laws of the state of New York without regard to its principles of conflicts
of law.
This Assignment shall be binding upon Assignor and its successors and
assigns, and shall inure to the benefit of Assignee and its successors and
assigns.
<PAGE> 3
IN WITNESS WHEREOF, Assignor has caused this Assignment to be executed
by its officers thereunto duly authorized as of the ____ day of _____________,
1994.
FGHK, INC.
By:____________________________
Title:
ATTEST:
__________________________
The undersigned acknowledges this
____ day of ________, 1994 receipt
of a copy of the foregoing Assignment
and agrees to be bound
by the provisions thereof.
Bank of New York, as Note Trustee
By: _______________________
Title:
[Notary Acknowledgment for Recording]
<PAGE> 1
Exhibit 4.7
ASSIGNMENT AGREEMENT
THE BANK OF NEW YORK, a New York banking corporation, solely as trustee
under the Note Indenture hereinafter referred to and not in its individual
capacity, having an address at 101 Barclay Street, New York, New York 10286
(the "Assignor"), for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, hereby assigns and transfers to THE BANK OF NEW
YORK, in its capacity as trustee under the Bond Indenture hereinafter referred
to (the "Assignee"), and not in its individual capacity, for the benefit of the
holders of certain bonds (collectively the "Bonds") issued under and pursuant
to a Collateral Trust Indenture (the "Bond Indenture"), dated as of
_______________, 1994, between The Bank of New York (the "Bond Trustee"), a New
York banking corporation, solely as Bond Trustee and not in its individual
capacity, and FGHK, Inc., the issuer of such Bonds, all of Assignor's rights
and interest, in, to and under (a) a certain Trust Indenture, Assignment of
Lease and Rents and Security Agreement, dated as of December 15, 1993, as the
same may be from time to time supplemented, amended, modified or restated (the
"Note Indenture"), between [Shawmut Bank Connecticut, National Association,]
[Society National Bank] not in its individual capacity, except as expressly
provided therein, but solely as owner trustee under the Trust Agreement [1993 -
_____], dated as of December 15, 1993 (the "Owner Trustee") and Assignor; (b)
that certain mortgage or deed of trust or deed to secure debt (the "Mortgage")
which encumbers the land described in Exhibit A attached hereto (the
"Premises") which was recorded on ______________, 1993 in Book _____, at Page
_____; (c) that certain Assignment of Rights which relates to the Premises
which was recorded on ________, 1993 in Book _____, at Page _____, as the same
may be from time to time amended or modified, (the "Assignment of Rights")
including, without limitation, the rights and interest of Assignor under the
Assignment of Rights to (i) the Lease and all sums now or hereafter payable to
the Assignor with respect thereto, including, without limitation, (I) all
amounts of Rent, payments pursuant to Article 22 of the Lease, the Note
Indenture Estate and the other Granting Clause Documents and (II) all rights
of the Owner Trustee, now existing or hereafter arising, to exercise any
election or option or to make any decision or determination or to give or
receive any notice, consent, waiver or approval or to take any other action
under or in respect of any Granting Clause Document (other than Excepted
Rights), as well as all rights, powers and remedies on the part of the Owner
Trustee, now existing or hereafter arising and whether arising under any
Granting Clause Document or by statute or at law or equity or otherwise,
arising out of any Event of Default (other than Excepted Rights); and (ii) all
rents (including Rent, but excluding Excepted Payments), issues, profits,
products, revenues and other income of all property from time to time subjected
to
<PAGE> 2
the lien and security interest of the Mortgage or the Note Indenture, and all
right, title and interest of every nature whatsoever of the Assignor, now
existing or hereafter arising, in and to the same and every part thereof
(except for Excepted Rights and Excepted Payments); and (d) that certain Option
to Lease which was recorded on _____________ , 1993 in Book ____, at Page ____
(except for Excepted Rights and Excepted Payments); and all proceeds of the
foregoing (the documents referred to in (a) through (d) above are collectively
referred to herein as the "Loan Documents"), including all rights of the
Assignor under the Loan Documents to exercise any election or option, to give
or receive any notice, consent, waiver or approval or to direct any action to
be taken thereunder by the Assignor all to the extent that the Assignor is then
entitled to effect each of such rights under the Note Indenture.
This Assignment is made as collateral security for the Bonds. All
capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Note Indenture.
Neither this Assignment, nor any action or inaction on the part of Assignee
shall, without the prior written consent of Assignee, constitute an assumption
on its part of any obligation under the Loan Documents; nor shall Assignee have
any obligation to make any payment to be made by Assignor under the Loan
Documents.
Assignor shall take all action it may from time to time be requested by
Assignee to take, as required by the terms of the Note Indenture. Assignor
shall remain liable to perform all of its obligations under the Note Indenture.
Assignor covenants that so long as this Assignment shall remain in effect it
will not assign or encumber, to anyone other than Assignee, the whole or any
part of the claims and rights hereby assigned, and that it will not, except as
otherwise specifically provided in the Note Indenture, without the prior
written approval of Assignee, amend, modify, release or cancel the Loan
Documents, accept the termination thereof, give any consent or waiver to make
any acceptance or rejection thereunder, or take or omit to take any action, to
the extent any of the foregoing might result in an alteration or impairment of
the lien of such Loan Documents or this Assignment or any of the rights created
by either of such instruments.
Notwithstanding anything in this Assignment to the contrary, (a) the Assignee
shall be subject to all limitations and restrictions applicable to it, as Bond
Trustee, to the bond holders, or otherwise under the Bond Indenture, (b) this
Assignment and the rights of Assignee hereunder are subject to
2
<PAGE> 3
the terms and conditions of the Note Indenture, and (c) all sums received by
the Assignee which constitute Rent, payments pursuant to Article 22 of the
Lease, insurance proceeds and condemnation, requisition and other awards and
payments of any kind for or with respect to any part of the Lease, or otherwise
under any Operative Document, shall be solely and exclusively paid and applied,
and remitted to the respective party, for the purpose and in the manner and
order of priority as set forth in Article 4 of the Note Indenture. Consistent
with the foregoing, each of FGHK, Inc., the Assignor and the Assignee hereby
acknowledges for itself and on behalf of the Noteholders and the holders of the
Bonds that the obligations of the Owner Trustee to make payments of principal,
interest or premium on the Notes issued pursuant to the Note Indenture shall be
deemed satisfied and discharged (i) to the extent of monies received by the
Assignee as Rent or otherwise pursuant to the Note Indenture or this Assignment
(other than Excepted Payments) and (ii) to the extent such monies would be
available to make such payments on the Notes if such monies were applied
pursuant to Article 4 of the Note Indenture (and regardless of whether such
monies are in fact so applied). For the purposes of this paragraph, the Owner
Trustee shall be deemed to be a third-party beneficiary and the parties hereto
agree and acknowledge that the provisions of this Assignment shall in no event
be modified or amended without the prior written consent of the Owner Trustee
so long as it is the Owner Trustee under the Trust Agreement and it has not
conveyed all of the interest in the Premises it holds on the date hereof.
This Assignment shall terminate, without further act, upon payment in full of
the principal of, and interest and premium, if any, on, (i) the Notes or, if
earlier, (ii) the Bonds and any other indebtedness secured by the Bond
Indenture. Assignee, at Assignor's sole cost and expense, will execute and
deliver such instruments as Assignor may reasonably request to further evidence
such termination.
This Assignment shall be governed by and construed in accordance with the
laws of the State of New York without regard to its principles of conflicts of
law.
This Assignment shall be binding upon Assignor and its successors and
assigns, and shall inure to the benefit of Assignee and its successors and
assigns.
3
<PAGE> 4
IN WITNESS WHEREOF, Assignor has caused this Assignment to be executed by its
officers thereunto duly authorized as of the ___ day of _________________,
1994.
ATTEST: THE BANK OF NEW YORK, not in its
individual capacity but solely as
Note Trustee
By: ___________________________
Name:
Title:
AGREED AND CONSENTED TO BY:
FGHK, INC.
By:_____________________________
Name:
Title:
[Shawmut Bank Connecticut, National Association]
[Society National Bank], not in its individual
capacity but solely as Owner Trustee
By:_____________________________
Name:
Title:
THE BANK OF NEW YORK, not in its
individual capacity but solely as
BOND TRUSTEE
By:_____________________________
Name:
Title:
FGHK, Ltd., A Wyoming Limited
Liability Company
By: Pine Street Capital Corporation,
as Manager
By:_____________________________
Name: James R. Greene
Title: President
4
<PAGE> 1
EXHIBIT 4.8
- --------------------------------------------------------------------------------
ASSIGNMENT OF RIGHTS
BY
_________________________,
not in its individual capacity but solely as
Owner Trustee ______________________
TO
THE BANK OF NEW YORK,
as Note Trustee
- --------------------------------------------------------------------------------
Prepared by and upon Recordation Return to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: Andrew H. Connor, Esq.
<PAGE> 2
ASSIGNMENT OF RIGHTS
______________________________________________ (the "Assignor"), not in its
individual capacity, but solely as Owner Trustee under the Trust Agreement
[1993 - ____] the "Trust Agreement", dated as of December 15, 1993 with the
"Owner Participant" having an address at 777 Main Street, Hartford, Connecticut
06115, for valuable consideration, the receipt of which is hereby acknowledged,
hereby assigns, transfers and sets over to THE BANK OF NEW YORK, a New York
banking corporation, solely as trustee under the Note Indenture hereinafter
referred to and not in its individual capacity, having an address at 101
Barclay, 21 W, New York, New York 10286 (the "Assignee") in order to secure
full repayment of the Notes all of Assignor's right, title and interest to a
certain Lease covering, inter alia, certain real property (the "Property")
described on Exhibit A hereto (as the same may from time to time be
supplemented or amended) dated as of the date hereof between the Assignor, as
landlord, and KMART CORPORATION, as lessee, a certain Assignment of Intangibles
dated as of the date hereof between Assignor and Kmart Corporation and the
Option to Lease, including but not limited to all right, title and interest of
the Assignor now existing or hereafter arising, in and to:
(a) the Lease and all sums now or hereafter payable to the Assignor with
respect thereto, including, without limitation, (i) all amounts of Rent,
payments pursuant to Article 22 of the Lease, the Note Indenture Estate and
the other Granting Clause Documents and (ii) all rights of the Assignor now
existing or hereafter arising, to exercise any election or option or to make
any decision or determination or to give or receive any notice, consent,
waiver or approval or to take any other action under or in respect of any
Granting Clause Document, as well as all rights, powers and remedies on the
part of the Assignor, now existing or hereafter arising and whether arising
under any Granting Clause Document or by statute or at law or equity or
otherwise, arising out of any Event of Default; and
(b) all rents (including Rent), issues, profits, products, revenues and
other income of all property from time to time subjected to the lien and
security interest of the Mortgage or the Note Indenture, and all right, title
and interest of every nature whatsoever of the Assignor, now existing or
hereafter arising, in and to the same and every part thereof.
<PAGE> 3
EXCLUDING, HOWEVER, at all times and for all purposes from this Assignment
any and all Excepted Payments and Excepted Rights. Assignor shall retain all
Excepted Rights under each Granting Clause Document, the Note Indenture
Estate and hereunderas well as all rents (including Rent), sums, payments and
other monies described in the definition of the term "Excepted Payments".
Notwithstanding any other provision in this Assignment to the contrary (a)
the Assignor shall have all rights and be entitled to all payments at all times
set forth, or reserved to it, in that certain Trust Indenture, Assignment of
Lease and Rents and Security Agreement between the Assignor and Assignee, dated
as of the date hereof (the "Note Indenture"), (b) the Assignee shall be subject
to all limitations and restrictions applicable to it, as Note Trustee or
otherwise, under the Note Indenture and this Assignment is subject to the terms
and conditions of the Note Indenture and for all purposes including, without
limitation, the provisions of Article 4 thereof. To the extent any term set
forth herein is inconsistent with the terms set forth in the Note Indenture,
the terms of the Note Indenture shall govern in all respects and for all
purposes. For the purposes of this paragraph, the Owner Participant shall be
deemed to be a third-party beneficiary and the parties hereto agree and
acknowledge that the provisions of this Assignment shall in no event be
modified or amended without the prior written consent of the Owner Participant
so long as it is the Owner Participant under the Trust Agreement.
This Assignment is made as part of the collateral security for certain notes
of Assignor being issued and delivered to the Assignee under and pursuant to
the Note Indenture.
Neither this Assignment nor any action or inaction on the part of Assignee
shall, without the written consent of Assignee, constitute an assumption on its
part of any obligation as landlord under the Lease; nor shall Assignee have any
obligation to make any payment to be made by Assignor under the Lease, or to
present or file any claim, or to take any other action to collect or enforce
the payment of any amounts which have been assigned to Assignee or to which it
may be entitled hereunder at any time or times. No action or inaction on the
part of Assignee shall adversely affect or limit in any way the rights of
Assignee hereunder or under the Lease or the Note Indenture.
All capitalized terms not otherwise defined herein shall have the same
meaning ascribed to them in the Note Indenture.
2
<PAGE> 4
IN WITNESS WHEREOF, the Assignor has caused this Assignment of Rights to be
executed by its duly authorized officer, as of the day and year first above
written.
ASSIGNOR:
WITNESSED AND ATTESTED: , not in its individual capacity but
as Owner Trustee under the Trust
Agreement
[SEAL]
______________________________ By:___________________________
Title: Name:
Title:
AGREED AND CONSENTED TO BY:
THE BANK OF NEW YORK,
not in its individual
capacity but solely as Note Trustee
By:_______________________________
Name:
Title:
FGHK, Ltd., A Wyoming Limited
Liability Company
By: Pine Street Capital Corporation,
as Manager
By:_______________________________
Name:
Title:
STATE OF MICHIGAN )
) ss.:
COUNTY OF WAYNE )
The foregoing Assignment of Rights was acknowledged before me, the
undersigned Notary Public, in the County of __________________, State of
_____________________, this _____ day of December, by ___________________, as
____________________ on behalf of the Assignor.
____________________________
Notary Public
[NOTARIAL SEAL]
My commission expires: _____________
3
<PAGE> 5
EXHIBIT 4.8
SCHEDULE OF MATERIALLY
DIFFERENT PROVISIONS
<TABLE>
<CAPTION>
OWNER TRUST GEOGRAPHIC
NUMBER LOCATION OF PROPERTY MATERIALLY DIFFERENT PROVISIONS
- ----------- --------------------- ---------------------------------------------------------
<S> <C> <C>
1993-1 Crescent City, CA None.
1993-2 Folsom, CA None.
1993-3 Watertown, NY None.
1993-4 Galesburg, IL None.
1993-5 Kenai, AK None.
1993-6 Fairbanks, AK None.
1993-7 Marina, CA None.
1993-8 Carmel Mt., CA None.
1993-9 Manteca, CA None.
1993-10 Fairlea, WV None.
1993-11 Lorain, OH None.
1993-12 Yuma, AZ None.
1993-13 Ft. Myers, FL None.
1993-14 San Antonio, TX None.
1993-15 Tulsa, OK None.
1993-16 Austin, TX None.
1993-17 Forest Park, GA None.
1993-18 Santee, CA None.
1993-19 Moorpark, CA None.
1993-20 Exmore, VA None.
1993-21 Tustin, CA None.
1993-22 Perris, CA None.
1993-23 Warwick, RI None.
1993-24 Sunrise, FL None.
</TABLE>
<PAGE> 1
Exhibit 4.9
FIRST AMENDMENT TO ASSIGNMENT OF RIGHTS
FIRST AMENDMENT TO ASSIGNMENT OF RIGHTS ("First Amendment") dated as of
March __, 1994 between [SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, a
national banking association,] [SOCIETY NATIONAL BANK,] not in its individual
capacity but as Owner Trustee under the Trust Agreement (as defined below) (the
"Owner Trustee") and THE BANK OF NEW YORK, a New York Banking corporation, not
in its individual capacity but as Note Trustee under the Note Indenture
hereinafter referred to (the "Note Trustee").
WITNESSETH:
WHEREAS, the Owner Trustee has entered into that certain Assignment of
Rights, dated as of December 15, 1993 (the "Assignment"), in favor of the Note
Trustee relating to a lease (as defined below) of certain real property
described on Exhibit A attached hereto (the "Property") which was recorded on
___________, 1993 in Book __________, at page ________ ; and
WHEREAS, in connection with the refinancing of the notes issued under
the Note Indenture, the parties to the Assignment wish to amend the Assignment
as set forth in this First Amendment;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. All capitalized terms not defined herein
shall have the meanings specified in the Assignment.
SECTION 2. Amendment. The defined term "Note Indenture" in the
Assignment is hereby amended to mean that certain Trust Indenture, Assignment
of Lease and Rents and Security Agreement relating to the Property between the
Owner Trustee and the Note Trustee, dated as of December 15, 1993, as the same
may be from time to time amended, modified, supplemented or restated.
SECTION 3. Full Force and Effect. Except as expressly amended and
modified by this First Amendment, the Assignment shall continue to be, and
shall remain, in full force and effect in accordance with its terms.
SECTION 4. No other Terms. This First Amendment shall be effective
solely to the extent set forth herein, and is not and shall not be construed to
be an amendment of any other term or condition of the Assignment.
SECTION 5. Counterparts. this First Amendment may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which together shall constitute a single instrument.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed by their respective officers thereunto duly authorized as
of the day and year first written above.
WITNESSED AND ATTESTED: SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, not in its individual
capacity but as Owner Trustee
[SEAL]
________________________ By: ____________________________
Title: Name: Robert L. Reynolds
Title: Asst. Vice President
WITNESSED AND ATTESTED: SOCIETY NATIONAL BANK, not in its
individual capacity but as Owner
Trustee,
[SEAL]
________________________ By: ____________________________
Title: Name:
Title:
WITNESSED AND ATTESTED: THE BANK OF NEW YORK, not in its
individual capacity but as Note
Trustee
[SEAL]
________________________ By: ____________________________
Title; Name:
Title:
AGREED AND CONSENTED TO BY:
FGHK, LTD., A WYOMING LIMITED
LIABILITY COMPANY
By: PINE STREET CAPITAL CORPORATION,
as Manager
By: _________________________
Name: James R. Greene
Title: Vice President
<PAGE> 1
Exhibit 8.1
March 11, 1994
Kmart Corporation
3100 West Big Beaver Road
Troy, Michigan 48084
Kmart Corporation
Registration No. 33-50297
Secured Lease Bonds, Series A, Series B and Series C
Gentlemen:
We have acted as special tax counsel to Kmart Corporation, a Michigan
corporation ("Kmart"), in connection with Kmart's Registration Statement on
Form S-3 (File No. 33-50297), as amended (the "Registration Statement"), being
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"), with respect to $172,300,000 aggregate principal
amount of Secured Lease Bonds, Series A, Series B, and Series C (the "Regular
Bonds"). The Regular Bonds are to be issued pursuant to a Collateral Trust
Indenture to be dated as of March 1994 (the "Bond Indenture"), between FGHK,
Inc., a New York corporation (the "Issuer"), and The Bank of New York, a New
York banking corporation, as Bond Trustee (the "Bond Trustee").
Kmart has sold 24 commercial properties (the "Properties") operated by
Kmart or one of its subsidiaries to 24 separate owner trustees (each, an "Owner
Trustee"), each not in its individual capacity, but solely as owner trustee
under one of 24 separate Trust Agreements (each, a "Trust Agreement") with the
holder or holders of the beneficial interest in the trust created thereby. Each
Owner Trustee has leased its respective Property back to Kmart pursuant to a
Lease Agreement (each, a "Lease"). To finance part of the purchase price of its
respective Property, each Owner Trustee issued a Series X Note, a Series Y
Note, and a Series Z Note (collectively, the "Interim Notes") to the Interim
Note holder pursuant to a Trust Indenture, Assignment of Lease and Rents and
Security Agreement (each, an "Original Note Indenture") between the Owner
Trustee and The Bank of New York, as Note Trustee (the "Note Trustee"). In
order to refinance the Interim Notes, the holder of the Interim Notes will
assign the Interim Notes to the Issuer in exchange for the proceeds of the
Regular Bonds and the Series AR, Series BR, and Series CR Bonds (collectively,
the "Residual Bonds") to be issued under the Bond Indenture. In connection
with the refinancing of the Interim Notes, the Interim Notes will be amended
and restated as Series A, Series B, and Series C Notes, respectively (as so
amended and restated, collectively, the "Notes"), and each Original Note
Indenture will be amended and restated (each as so amended and restated, a
"Note Indenture"). Pursuant to each Note Indenture, certain of each Owner
Trustee's rights under the related Lease, including the right to receive rent
and certain other payments, has been assigned to the Note Trustee, together
with a mortgage on the related Property (each
<PAGE> 2
Kmart Corporation
March 11, 1994
Page 2
a "Mortgage"). As security for the benefit of the holders of the Regular Bonds
and the Residual Bonds, the Issuer will, among other things, pledge to the Bond
Trustee all of its right, title and interest in and to the Notes and assign to
the Bond Trustee all of its rights and interest in the Note Indentures and the
payments and other amounts received thereunder or in respect of the Notes (the
assets and rights so pledged and assigned under the Bond Indenture being
referred to as the "Trust Estate"). Certain duties relating to the
administration of the real estate mortgage investment conduits ("REMICs") to be
created with respect to portions of the Trust Estate will be performed by The
Bank of New York, as tax administrator (the "Tax Administrator").
In furnishing this opinion, we have assumed, with your permission, that
(i) the Leases constitute legal, valid and binding obligations of Kmart,
enforceable against Kmart in accordance with their respective terms; (ii) the
Owner Trustee under each Trust Agreement is authorized to hold title to real
and personal property in the state in which the respective Property is located;
(iii) in accordance with the Original Note Indentures, the Interim Notes are,
and in accordance with the Note Indentures, the Notes will be, secured by a
perfected first priority security interest in the related Properties; (iv) the
Issuer has been duly incorporated and is validly existing and in good standing
under the laws of the State of New York; (v) the yield maintenance premiums to
be paid in certain circumstances if the Notes are prepaid are customary in the
lending market for loans made on commercial properties of a type including the
Properties that secure the Notes; (vi) the appraised fair market value of each
Property at the closing of the sale of each Property to the respective Owner
Trustee was greater than 80% of the aggregate original principal amount of the
related Interim Notes and will be greater than 80% of the aggregate original
principal amount of the Notes; and (vii) the obligations of the holders of the
Residual Bonds to pay the fees of the Bond Trustee and the Tax Administrator
will be legally binding on them and they will have sufficient funds to pay such
fees.
We have reviewed the originals or copies of (i) the Registration
Statement and the prospectus included therein; (ii) the forms of the Bond
Indenture, including the forms of the Regular Bonds and the Residual Bonds
annexed thereto, the form of Note Indenture, including the forms of the Notes
annexed thereto and the form of Mortgage, all filed as exhibits to the
Registration Statement; (iii) the Original Note Indentures and the Interim
Notes issued thereunder; (iv) the Trust Agreements; (v) the form of
Transferee Agreement (as defined in the Bond Indenture); and (vi) such other
documents as we have deemed
<PAGE> 3
Kmart Corporation
March 11, 1994
Page 3
necessary or appropriate as a basis for the opinions set forth below.
Based on the foregoing, we are of the opinion that the statements and
legal conclusions contained in the Prospectus under the caption "Certain
Federal Income Tax Considerations" are correct, and the discussion thereunder
does not omit any considerations that are material to holders of the Regular
Bonds with respect to the matters covered. We also are of the opinion that, if
(i) Kmart, each Owner Trustee, the Issuer, the Bond Trustee, each Note Trustee,
the Tax Administrator, the holders of the Residual Bonds and the other parties
to the issuance transaction comply (without waiver) with all of the provisions
of the Bond Indenture, the Note Indentures, the Mortgages, the Transferee
Agreements, and the other documents to be prepared and executed in connection
with such transaction, (ii) the Bonds are issued and sold as described in the
Registration Statement, and (iii) an election is properly made and filed for
the Pool A Asset Group, the Pool B Asset Group, and the Pool C Asset Group (all
as defined in the Bond Indenture) to be treated as separate REMICs pursuant to
Section 860D of the Internal Revenue Code of 1986, as amended (the "Code"),
each such Asset Group will qualify as a REMIC, and the Series A Bonds, the
Series B Bonds, and the Series C Bonds will be considered to be "regular
interests" in the related REMICs, on the date of issuance thereof and
thereafter, assuming continuing compliance with the REMIC provisions of the
Code and any regulations thereunder.
You should be aware that this opinion and the discussion contained in the
Prospectus under the caption "Certain Federal Income Tax Considerations"
represent our conclusions as to the application of existing law to the
transaction described above. There can be no assurance that contrary positions
will not be taken by the Internal Revenue Service or that the law will not
change.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. We also consent to the references to Hunton & Williams
under the captions "Certain Federal Income Tax Considerations" and "Legal
Opinions" in the Prospectus. In giving this consent, we do not admit that we
are in the category of persons whose consent is required by Section 7 of the
Act or the rules and regulations promulgated thereunder by the Securities and
Exchange Commission.
Very truly yours,
Hunton & Williams
<PAGE> 1
EXHIBIT 11
<TABLE>
<CAPTION>
KMART CORPORATION AND SUBSIDIARY COMPANIES
INFORMATION ON RATIO OF EARNINGS
TO FIXED CHARGES COMPUTATION
Restated to exclude discontinued operations
Fiscal Year Ended 52 Weeks Ended
----------------------------------------- --------------------------
January 30, January 29, January 27, October 28, October 27,
(Millions) 1991 1992 1993 1992 1993
----------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Pretax income from continuing operations $1,070 $1,189 $1,327 $1,244 1,197
Equity income of unconsolidated affiliated
retail companies that exceeds distributions (37) (26) (12) (14) (19)
Fixed charges per below 549 582 664 652 722
Less interest capitalized during the period (5) (10) (14) (12) (14)
----------------------------------------- --------------------------
Earnings from continuing operations 1,577 1,735 1,965 1,870 1,886
----------------------------------------- --------------------------
----------------------------------------- --------------------------
Fixed Charges:
Interest expense 393 398 442 417 500
Rent expense - portion of operating rentals
representative of the interest factor 150 172 206 222 206
Other 6 12 16 13 16
----------------------------------------- --------------------------
549 582 664 652 722
----------------------------------------- --------------------------
----------------------------------------- --------------------------
Ratio of earnings to fixed charges 2.9 3.0 3.0 2.9 2.6
----------------------------------------- --------------------------
----------------------------------------- --------------------------
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Amendment No. 1 to the Registration Statement on Form
S-3 of our report dated March 1, 1993, which appears on page 30 of the 1992
Annual Report to Shareholders of Kmart Corporation, which is incorporated by
reference in Kmart Corporation's Annual Report on Form 10-K for the year ended
January 27, 1993. We also consent to the incorporation by reference of our
report on the Financial Statement Schedules, which appears on page 12 of such
Annual Report on Form 10-K. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Price Waterhouse
Price Waterhouse
Detroit, Michigan 48243
March __, 1994
<PAGE> 1
EXHIBIT 99.1
KMART CORPORATION,
Tenant,
and
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION
(solely as Owner Trustee under Trust
Agreement with RETRAM, Inc., a Delaware Corporation,
as Owner Participant)
Landlord.
LEASE
Kmart Store No.: 7432
Location: Watertown, New York
Owner Trust No.: 1993-3
Dated as of December 15, 1993
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. DEMISED PREMISES . . . . . . . . . . . . . . . . . . . . . 1
2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. BASIC AND ADDITIONAL RENT . . . . . . . . . . . . . . . . 2
4. NET LEASE; NON-TERMINATION . . . . . . . . . . . . . . . . 5
5. ECONOMIC ABANDONMENT . . . . . . . . . . . . . . . . . . . 6
6. NO CONTINUOUS OPERATION . . . . . . . . . . . . . . . . . 8
7. REAL ESTATE TAXES . . . . . . . . . . . . . . . . . . . . 8
8. LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . . 15
9. OPTIONS TO EXTEND LEASE . . . . . . . . . . . . . . . . . 16
10. REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . 17
11. ALTERATIONS AND ADDITIONAL CONSTRUCTION . . . . . . . . . 19
12. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . 20
13. GOVERNMENTAL REGULATIONS . . . . . . . . . . . . . . . . . 20
14. LANDLORD TO GRANT EASEMENTS, DEDICATIONS, ETC. . . . . . . 21
15. INSURANCE; DAMAGE TO DEMISED PREMISES . . . . . . . . . . 22
16. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . 24
17. INSURANCE PROCEEDS, CLAIMS SETTLEMENT . . . . . . . . . . 26
18. USE, ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . 29
19. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
20. INGRESS AND EGRESS; LIENS . . . . . . . . . . . . . . . . 30
21. TENANT DEFAULTS . . . . . . . . . . . . . . . . . . . . . 31
22. LANDLORD REMEDIES . . . . . . . . . . . . . . . . . . . . 32
23. BANKRUPTCY . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
24. COVENANT OF TITLE . . . . . . . . . . . . . . . . . . . . 34
25. LANDLORD EXCULPATION . . . . . . . . . . . . . . . . . . . 34
26. REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . 34
27. ESTOPPEL LETTERS . . . . . . . . . . . . . . . . . . . . . 35
28. CONDITION OF PREMISES AT TERMINATION . . . . . . . . . . . 35
29. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . 36
30. NOTICE OF ENVIRONMENTAL MATTERS . . . . . . . . . . . . . 37
31. ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . 38
32. CAPTIONS AND DEFINITIONS . . . . . . . . . . . . . . . . . 38
33. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . 38
34. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . 38
35. INDEPENDENT COVENANTS . . . . . . . . . . . . . . . . . . 38
36. CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . 39
37. WAIVER AND MODIFICATIONS . . . . . . . . . . . . . . . . . 39
38. MEMORANDUM OF LEASE . . . . . . . . . . . . . . . . . . . 39
39. HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . 39
40. PRIVATE COMPANY FINANCIAL STATUS . . . . . . . . . . . . . 40
41. TENANT'S PURCHASE OFFER . . . . . . . . . . . . . . . . . 41
42. PROPERTY SUBSTITUTION . . . . . . . . . . . . . . . . . . 42
43. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT . . . . . . . . 43
44. NO MERGER OF TITLE . . . . . . . . . . . . . . . . . . . . 43
45. OWNERSHIP OF THE LEASED PROPERTY . . . . . . . . . . . . . 43
46. PROCEDURE FOR APPRAISALS . . . . . . . . . . . . . . . . . 44
47. SURVIVAL OF TENANT'S OBLIGATIONS . . . . . . . . . . . . . 45
48. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . 45
49. LIABILITIES OF LANDLORD . . . . . . . . . . . . . . . . . 45
</TABLE>
-ii-
<PAGE> 4
SCHEDULES AND EXHIBITS
Exhibit A Legal Description
Exhibit B Depiction of Site
Exhibit C Rents and Rent Payment Dates
Exhibit C-1 Landlord's Debt
Exhibit C-2 Rental Adjustment Certificate
Exhibit D Termination Value
Exhibit E Form of Estoppel Letter
<PAGE> 5
LEASE
THIS LEASE made and entered into as of this 15th day of
December, 1993, between SHAWMUT BANK CONNECTICUT, a national banking
association, not in its individual capacity, except as expressly stated herein,
but solely as trustee under Trust Agreement of even date herewith, having its
principal office at 777 Main Street, Hartford, Connecticut 06115 ("Landlord"),
and KMART CORPORATION, a Michigan corporation having its principal office at
3100 West Big Beaver Road, Troy, Michigan 48084 ("Tenant").
RECITALS:
A. By Agreement for Sale of Real Estate of even date
herewith ("Purchase Agreement"), Tenant has sold to Landlord for the benefit of
RETRAM, Inc., a Delaware corporation ("Owner Participant"), an Estate for Years
interest in certain properties including the Land as herein defined and a fee
interest in the site and building improvements and certain personalty thereon,
and has sold to FGHK, Ltd., A Wyoming Limited Liability Company ("Remainder
Purchaser") a remainder interest in such Land;
B. Tenant desires and Landlord has agreed to lease
back the Demised Premises to Tenant on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the rents, covenants
and conditions herein set forth, Landlord and Tenant do hereby covenant,
promise and agree as follows:
1. Demised Premises.
(a) Landlord does demise unto Tenant and Tenant
does take from Landlord for the lease term all of Landlord's right, title and
interest in the following property: the land as legally described in Exhibit
A, attached hereto and made a part hereof, and situated in the City of
Watertown, County of Jefferson, State of New York and depicted on Exhibit B
attached hereto and made a part hereof ("Land"), the building (designated
Kmart), personalty and all site improvements now or hereafter constructed or
located thereon, together with all licenses, rights, privileges and easements
appurtenant thereto.
The building, site improvements and certain
personalty together with all of Landlord's right, title and interest therein
and in the Land, shall be herein collectively referred to as the "Demised
Premises."
(b) Tenant hereby acknowledges and agrees that
the Demised Premises are let by Landlord in an "as is" condition without any
warranty, express or implied, of habitability or fitness for any particular
purpose and without representation or warranty with regard to any latent or
patent faults or defects therein or as to the value or operation thereof.
2. Term.
The interim term of this Lease ("Interim Term")
shall commence on the date hereof and shall terminate on June 30, 1994 and the
base term of this Lease ("Base Term") shall commence on July 1, 1994 and
terminate on December 31, 2018; provided,
<PAGE> 6
however, the Lease Term may be extended as provided in Article 9 hereof. The
phrase "Lease Term," as used in this Lease, shall be the Interim Term and Base
Term of this Lease together with any extension thereof pursuant to Article 9.
3. Basic and Additional Rent.
(a) Tenant shall pay by wire transfer of funds
to Landlord or its designee, at such place as Landlord shall designate in
writing from time to time, (i) rent during the Interim Term ("Interim Rent") on
the first day of each month ("Interim Rent Payment Dates") as set forth in
Exhibit C attached hereto and made a part hereof; and (ii) rent during the Base
Term and during any extended term pursuant to Article 9 ("Basic Rent") in such
amounts and semiannually on such dates ("Rent Payment Dates") as set forth in
Exhibit C. No Basic Rent shall be due and payable during the Interim Term.
Tenant shall also pay during the Lease Term all amounts of Additional Rent as
and when due. Interim Rent, Basic Rent and Additional Rent are referred to
herein collectively as "Rent."
"Additional Rent" shall mean: (i) all other
monetary obligations of Tenant hereunder of any nature or type whatsoever,
including but not limited to payment of taxes, insurance, expenses for repairs,
maintenance and replacements and an amount equal to any Make-Whole Premium and
Break Amount (each as hereinafter defined) expressly required to be paid under
this Lease, (ii) Tenant's share of expenses under the Obligation Documents (as
hereinafter defined), (iii) all expenses in connection with a Rental Adjustment
(as defined in the Purchase Agreement and referenced below) other than any
amounts payable by Landlord or Owner Participant under the Purchase Agreement,
(iv) Initial Loan Participant Expenses, Trustee Expenses and Issuer Expenses
(each as defined below), and (v) amounts due and payable by Tenant under that
certain Master Indemnification Agreement and that certain Tax Indemnification
Agreement, each of even date herewith (collectively, "Indemnification
Agreements"). Notwithstanding the foregoing sentence, to the extent that any
amounts relate to a property other than the Demised Premises, such amounts
shall not be treated as Additional Rent hereunder.
Initial Loan Participant Expenses shall mean all
commitment, facility, administrative, syndication and other fees and expenses
of Initial Loan Participant under that certain Multi-Party Agreement of even
date herewith by and among Landlord, Tenant, Owner Participant, Note Trustee,
Remainder Purchaser and Initial Loan Participant.
Trustee Expenses shall mean (i) the ordinary and
extraordinary fees and expenses of Landlord as Owner Trustee ("Owner Trustee")
under that certain Trust Agreement with Owner Participant of even date herewith
("Trust Agreement"), but not including fees and expenses incurred as a result
of Owner Participant's or Owner Trustee's breach of their obligations under the
Operative Documents as defined in the Purchase Agreement; (ii) the ordinary and
extraordinary fees and expenses of Bank of New York, as trustee ("Note
Trustee") under that certain Indenture with Landlord of even date herewith
("Note Indenture"), but excluding any principal or interest payments, or
(except as otherwise expressly identified herein as Additional Rent) Make-Whole
Premium, Break Amount or penalties on Landlord's indebtedness evidenced by the
Note Indenture or contemplated by Article 8 of the Multi-Party Agreement
("Landlord's Debt"); and (iii) the ordinary and extraordinary fees and expenses
of
-2-
<PAGE> 7
Bank of New York, as trustee ("Bond Trustee") under that certain Collateral
Trust Indenture intended to be entered into pursuant to the terms and
conditions of the Multi-Party Agreement ("Bond Indenture") with Issuer (as
defined below) in connection with the Refunding Notes (as defined in the
Purchase Agreement), but excluding any principal, interest, prepayment premiums
or penalties on the Issuer's indebtedness evidenced by the Bond Indenture.
Issuer Expenses shall mean the ordinary and
extraordinary fees and expenses of FGHK, Inc., a New York corporation, as
issuer of certain secured lease bonds ("Issuer"), to maintain its corporate
existence and required qualifications to consummate the transactions
contemplated by, and to perform its obligations under, the Bond Indenture and
other Operative Documents, but shall not include any salaries or wages or other
payments to its administrator or employees, if any.
(b) In the event any Rent payable to Landlord is
not received by Landlord on the due date therefor, a late charge shall be
incurred and shall be paid as Additional Rent hereunder on the amount due from
the due date therefor to the date of payment thereof in an amount equal to one
percent (1%) above the weighted average annual coupon rate of interest on
Landlord's Debt outstanding at the time such amount was due. Such charge at
such rate is referred to herein as the "Default Rate." At any time that
Landlord's Debt is no longer outstanding, the Default Rate shall equal an
annual rate of eight and one-half percent (8-1/2%).
(c) Tenant covenants to Landlord and Note
Trustee that (i) as of the date hereof and as of the date of each Rental
Adjustment (as referenced below), each installment of Interim Rent and Basic
Rent as of the due date of such installment as set forth on Exhibit C hereto
is, and shall be, at least equal to the amount of principal and interest on the
Landlord's Debt as set forth on Exhibit C-1 required to be paid by Landlord
under the Note Indenture (as in effect on the date hereof) on the due date of
such installment of Interim Rent and Basic Rent; and (ii) as of the date
hereof, the date of each Rental Adjustment (as referenced below) and the date
of each Termination Value adjustment pursuant to Article 16(d), the sum of all
Interim Rent and Basic Rent payable in arrears on such date together with each
Termination Value set forth on Exhibit D hereto is, and shall be, sufficient to
enable Landlord to pay in full, as of the date of payment thereof, the
aggregate unpaid principal of the outstanding Landlord's Debt required to be
paid by Landlord as of such date under the Note Indenture (as in effect on the
date hereof), together with all unpaid interest thereon accrued to the date on
which such amount is paid.
(d) In the event that a Rental Adjustment shall
be required pursuant to and in accordance with Section 4(B) of the Purchase
Agreement, Landlord and Tenant shall execute and deliver (i) to each other and
to Note Trustee a supplement to the Lease, to reflect such adjustment, provided
that such adjustment shall be effective for all purposes of this Lease
regardless of whether such supplement is actually executed and delivered, and
(ii) to Note Trustee, a certificate substantially in the form of Exhibit C-2
hereto. "Rental Adjustment" shall have the meaning set forth in Section
4(B)(1) of the Purchase Agreement and shall include adjustment of Termination
Values pursuant to such Section.
(e) Notwithstanding the foregoing paragraph, if,
solely as a result of any Rental Adjustment caused by the occurrence of an
event described in clause (i) of
-3-
<PAGE> 8
Section 4(B)(1) of the Purchase Agreement, the Base Term Basic Rent as adjusted
exceeds an amount equal to 9% per annum of the Property Cost identified on
Schedule C to the Purchase Agreement and Landlord shall not have waived any
such adjustment in excess of 9%, Tenant shall have the right to make a
rejectable offer to purchase the Demised Premises ("Tenant's Purchase Offer")
by written notice to Landlord within ninety (90) days after the date on which
the amount of the Rental Adjustment is conclusively determined pursuant to
Section 4(B)(3) of the Purchase Agreement. Tenant's Purchase Offer shall be
made in accordance with Article 41 of this Lease.
(f) Each installment of Interim Rent and Basic
Rent shall be increased or decreased, as the case may be, by the Rent
Differential. For purposes hereof, "Rent Differential" shall mean, as of any
Interim Rent Payment Date or Rent Payment Date or the date of any refinancing
pursuant to Article 8 of the Multi-Party Agreement, the difference between (i)
the aggregate amount of interest due, unpaid and payable on such date
(calculated on a basis of a day year and actual days elapsed) on the Landlord's
Debt for the Interest Period (as defined in the Note Indenture) then ending and
(ii) the aggregate amount of interest on the Landlord's Debt that would have
been due and payable on such date for the Interest Period then ending if the
Landlord's Debt had at all times during such Interest Period borne interest at
the rates set forth on Exhibit C-1 hereto relating to such period (in each case
computed on the basis of a 360-day year and actual days elapsed). As of any
Interim Rent Payment Date or Rent Payment Date, (A) if the amount determined in
accordance with clause (i) of the immediately preceding sentence shall be
greater than the amount determined in accordance with clause (ii) of such
sentence, the amount of Interim Rent or Basic Rent due on such date shall be
increased by the Rent Differential, and (B) if the amount determined in
accordance with such clause (ii) shall exceed the amount determined in
accordance with such clause (i), the amount of Interim Rent or Basic Rent due
on such date shall be decreased (but not below zero) by the Rent Differential.
Landlord shall notify Tenant, solely for purposes of the calculation of the
applicable Rent Differential, not less than two (2) days prior to each Interim
Rent Payment Date or Rent Payment Date, of the aggregate amount of interest on
the Landlord's Debt as specified to Landlord by Initial Loan Participant or any
subsequent holder of Landlord's Debt which will be due and payable on such
date. Tenant shall notify Note Trustee, Landlord and Owner Participant on each
Interim Rent Payment Date and Rent Payment date of the Rent Differential
component, if any, of its installment of Interim Rent or Basic Rent on such
date. For purposes hereof, Interest Period shall mean with respect to each
Rent Payment Date, the period from and including the prior Interim Rent or Rent
Payment Date to but excluding such Interim Rent Date or Rent Payment Date.
4. Net Lease; Non-Termination.
(a) Tenant acknowledges and agrees that this
Lease is an absolute net lease. All monetary obligations under this Lease,
including, but not limited to, payment of all Rent shall be paid by Tenant
without notice, demand, setoff, counterclaim, abatement, deduction or defense.
Tenant shall have no right to terminate this Lease (except as expressly
provided in Articles 3, 5, 15, 16 and 18 hereof) nor shall Tenant be entitled
to any abatement or reduction of Rent hereunder except to the extent this Lease
is terminated as expressly provided in Articles 3, 5, 15, 16 and 18 hereof),
nor shall the obligations of Tenant under this Lease be affected, by reason of:
(i) any damage to or destruction of all or any part of the
-4-
<PAGE> 9
Demised Premises from whatever cause, (ii) the taking of the Demised Premises
or any portion thereof by eminent domain or other taking by a party empowered
with the authority of eminent domain, (iii) the prohibition, limitation or
restriction of Tenant's use of all or any part of the Demised Premises, or any
interference with such use, (iv) any default on the part of Landlord under this
Lease, (v) any eviction by a holder of paramount title or otherwise, (vi) any
purported merger of estates resulting from Tenant's acquisition or ownership of
all or any part of the Demised Premises otherwise than as expressly provided
herein, or (vii) any other cause whether similar or dissimilar to the
foregoing, any present or future law to the contrary notwithstanding.
(b) Tenant agrees that it will remain obligated
under this Lease in accordance with its terms, and that it will not take any
action to terminate, rescind or void this Lease, notwithstanding (i) the
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution or winding-up or other proceeding affecting Landlord or its
successors in interest, or (ii) any action with respect to this Lease which
may be taken by any trustee or receiver of Landlord or its successor in
interest or by any court in any such proceeding.
5. Economic Abandonment.
(a) Notwithstanding anything contained in this
Lease to the contrary, Landlord and Tenant acknowledge that it is possible
that, during the Base Term of this Lease, due to changes in the conduct of
Tenant's business or other factors, the Demised Premises may become obsolete or
may no longer be economic for Tenant's use and occupancy. Therefore, on any
Rent Payment Date on and after the 10th year and before the expiration of the
Base Term upon determination by Tenant that the Demised Premises are obsolete
or are no longer economic because of reasons as stated hereinabove, provided no
Event of Default has occurred and is continuing, Tenant may, by providing at
least twelve (12) months and not more than eighteen (18) months notice to
Landlord ("Notice of Termination"), terminate this Lease on the Rent Payment
Date specified in such notice ("Termination Date"). Such notice may be revoked
by Tenant on not more than two occasions during the Lease Term provided such
revocation shall have been made not less than ninety (90) days prior to the
Termination Date and provided further that Landlord shall not have accepted
Tenant's request to terminate the Lease and to return the Demised Premises to
Landlord by delivering written notice of acceptance to Tenant within one
hundred (100) days after its receipt of Notice of Termination ("Landlord's
Acceptance"). Tenant's Notice of Termination shall be accompanied by a
certificate, signed and sworn to by a duly authorized and acting officer of
Tenant, stating that Tenant has made the determination that the Demised
Premises are no longer suitable and reciting the reasons for such
determination.
(b) If Landlord's Acceptance has not been made,
Tenant, as non-exclusive agent for Landlord, shall use its reasonable efforts
at its own expense on behalf of Landlord to obtain cash bids for the purchase
of all of Landlord's right, title and interest in the Demised Premises from
persons other than Tenant or any of its affiliates. Landlord shall also have
the right to obtain cash bids for the purchase thereof, either directly or
through Landlord's agents. Tenant shall certify to Landlord in writing the
amount and terms of each bid received by Tenant and the name and address of the
person submitting a bid.
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(c) If Landlord's Acceptance has not been made,
on the Termination Date Landlord shall (subject to Tenant's receipt in
immediately available funds of the net sales price on such date for the benefit
of Landlord and Tenant's payment of all additional payments specified in
clauses (A), (B), (C), (D) and (E) below), without recourse or warranty, sell
all of its right, title and interest in the Demised Premises to the bidder
which shall have submitted the highest all cash bid prior to such date. On the
Termination Date, the total sales price realized at such sale net of all
expenses incurred by Landlord shall be paid to Tenant and Tenant shall pay to
Landlord (or, in the case of Additional Rent, to Landlord or the person
entitled thereto) the sum of (A) the Termination Value of the Demised Premises
determined as of the Termination Date, plus (B) the excess, if any, of the net
sales price of the Demised Premises over such Termination Value, plus (C) all
Basic Rent due and unpaid to and including the Termination Date (other than any
portion of Basic Rent payable in advance on the Termination Date), plus (D) all
Additional Rent owing by Tenant to and including the Termination Date, plus (E)
an amount equal to the Make-Whole Premium and Break Amount (as defined in the
Note Indenture), if any, on Landlord's Debt.
(d) In the event Landlord's Acceptance has been
made, on the Termination Date Tenant shall pay to Landlord solely the amounts
set forth in clauses (C), (D) and (E) of the preceding paragraph. Upon receipt
by Landlord of such amounts and upon compliance by Tenant with Article 28
hereof, this Lease shall terminate.
Landlord shall use its best efforts to determine
any non-compliance with Article 28 hereof and shall give notice of any such
non-compliance within thirty (30) days after Landlord's Acceptance. Any such
notice or any failure to give such notice shall not impair Landlord's right to
give Tenant further notices of non-compliance with Article 28 until the Lease
terminates in accordance with the immediately preceding paragraph.
(e) If Landlord's Acceptance has not been made
and a sale shall not have occurred as of the Termination Date, Landlord shall
have the option of either (i) transferring the Demised Premises on the
Termination Date without recourse or warranty to Tenant in which event Tenant
shall pay to Landlord (or, in the case of Additional Rent, to Landlord or the
person entitled thereto) the amounts set forth in clauses (C), (D) and (E) of
paragraph (c) above together with the higher of the (x) then fair market sales
value of the Demised Premises as agreed to by the parties or as determined by
an appraisal reasonably satisfactory to Landlord and Tenant obtained at
Landlord's sole cost and expense, to be performed in accordance with Article 46
hereof, or (y) Termination Value of the Demised Premises determined as of the
Termination Date, or (ii) retaining the Demised Premises on the Termination
Date, in which case Tenant shall pay to Landlord on such date solely the
amounts set forth in clauses (C), (D) and (E) of paragraph (c) above. Upon
receipt by Landlord of such amounts and upon compliance by Tenant with Article
28 hereof, this Lease shall terminate. In the event Landlord elects to
transfer the Demised Premises to Tenant on the Termination Date, it shall
transfer all of its right, title and interest in the Demised Premises in an "as
is" condition without warranty, except that the Demised Premises shall be free
and clear of Lessor Liens.
For purposes of this Lease, "Lessor Liens" shall
mean liens on or against the Property, the Lease, the Trust Estate (as defined
in the Purchase Agreement) or
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any payment of Rent (a) which result from any act of, or any claim against,
Landlord (in its individual capacity or in its trust capacity) or Owner
Participant unrelated to the transactions contemplated by the Purchase
Agreement, or (b) which result from any violation by Landlord (in its
individual capacity or in its trust capacity) or Owner Participant of any of
the terms of the Operative Documents, or (c) which result from liens in favor
of any taxing authority by reason of any Tax owed by Landlord (in its
individual capacity or in its trust capacity) or Owner Participant, the payment
of which is not the obligation of Tenant or Kmart Corporation ("Kmart") under
the Operative Documents, or (d) which evidence or secure Landlord's Debt.
(f) Landlord shall be under no duty to solicit
bids, or to inquire into the efforts of Tenant to obtain bids or otherwise to
take any action in connection with any sale hereunder other than to sell the
Demised Premises to the highest independent third party bidder in accordance
with the terms hereof. In the event that Tenant terminates this Lease under
this Article 5, Tenant shall not use the Demised Premises for any purpose.
6. No Continuous Operation.
Nothing contained in this Lease shall be construed
to be a covenant or other obligation on the part of Tenant, either express or
implied, to operate a business at the Demised Premises, except as the same may
be required by Laws or by any agreement Tenant is required to comply with
pursuant to Article 10(b) hereof.
7. Real Estate Taxes.
(a) Tenant shall pay and discharge all ad
valorem real estate taxes or other taxes in the nature thereof and all
assessments, general or specific (regardless how named or denominated), levied
or imposed against or with respect to (i) the Demised Premises or any part
thereof or interest therein or any addition, alteration, modification or
improvement thereto, (ii) the Remainder Interest, (iii) the Rent, or (iv)
Landlord's interest in this Lease or in the Demised Premises, including, in
each case, any interest, penalties and additions to tax relating to such taxes
or assessments (collectively referred to as "Property Assessments") at any time
prior to, during or with respect to any period ending on or prior to, or
resulting from or attributable in any respect to acts or events occurring on or
prior to or relating to payments made by Tenant under the Operative Documents
(as defined in the Purchase Agreement) at any time prior to or after, the later
of (x) the expiration or earlier termination of the Lease and (y) Tenant's
actual return of possession of the Demised Premises in accordance with this
Lease.
(b) Tenant shall also pay and discharge all
taxes, levies, charges, licenses, fees, imposts, duties, withholdings,
liabilities, costs, expenses or assessments of the United States of America or
any state or political subdivision or taxing authority thereof or therein
(including any interest, penalties and additions to tax thereon or thereto),
which are levied, assessed or imposed on Landlord, Tenant, the Demised Premises
or any part thereof or interest therein or any addition, alteration,
modification or improvements thereto, the Remainder Interest or the Rent
payable hereunder including, without limitation, taxes or such other amounts
that are or are in the nature of sales, use, rental, value added and transfer
taxes, and any and all water, sewer or other such charges, excises, levies,
fees, licenses, duties,
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withholdings, permits, inspections, real property franchise charges and other
governmental charges of every character (in each case, regardless how named or
denominated) which, at any time prior to, during or with respect to any period
ending on or prior to, or resulting from or attributable in any respect to acts
or events occurring on or prior to or relating to payments made by the Tenant
under the Operative Documents at any time prior to or after, the later of (x)
the expiration or earlier termination of the Lease and (y) the Tenant's actual
return of possession of the Demised Premises in accordance with this Lease, may
be levied, assessed or imposed on or in connection with or with respect to, the
Demised Premises, or any estate, right, title or interest therein, or any
occupancy, operation, leasing, subleasing, use or possession of, or sales from,
or other activity conducted on the Demised Premises, any addition, alteration,
modification or improvement thereto, the Remainder Interest, this Lease, the
Rent or otherwise with respect to or in connection with the transactions
contemplated by this Lease. Any such taxes, levies, charges, assessments or
other amounts payable by Tenant hereunder together with Property Assessments
payable by Tenant hereunder shall be referred to as "Assessments" for all
purposes of this Lease.
(c) Nothing in paragraphs (a) and (b) shall
require Tenant to pay or reimburse Landlord for the payment of (w) any federal,
state or municipal net income tax, or any net profit, inheritance, estate,
succession, gift, or franchise tax (regardless how named or denominated) except
for any such tax (i) which is in Direct Substitution (which Direct Substitution
is documented by published administrative regulation, fiat or other official
ruling, notice or release of any kind and/or in a statutory enactment or
legislative history thereof by the state or political subdivision which enacted
and/or levied any such tax) for any Assessment which Tenant is obligated to pay
under this Lease, (ii) which is, or is in the nature of, a real property
franchise charge, or a sales, use, rental, property, value added, or transfer
tax, (iii) which is necessary to make any payments hereunder on an After-Tax
Basis (as defined in the Master Indemnification Agreement) (x) any transfer tax
imposed upon the sale of all or a part of the Demised Premises by Landlord
except for (i) a sale and transfer pursuant to Tenant's Purchase Offer set
forth in Articles 3, 5, 15, 16, 18, 22 or 41 hereof or any sale to a third
party under Article 5 hereof, (ii) any disposition or transfer resulting in
connection with Articles 10, 11, 14, 18 or 42 hereof, and (iii) a transfer in
connection with an Event of Default hereunder, (y) any tax, assessment, charge
or levy imposed or levied upon or assessed against any property, any income or
any business activity of Landlord to the extent such tax, assessment, charge or
levy would have been imposed or levied in the absence of the transactions
contemplated by the Operative Documents (including any intangibles tax imposed
with respect to any debt or investment paper of the Landlord that is unrelated
to the transactions contemplated by the Operative Documents or the Owner
Participant's Financing (as defined in the Master Indemnification Agreement) or
(z) with respect to Landlord, any tax resulting from the willful misconduct
(including fraud) or gross negligence of Landlord.
(d) The date of levy of all Assessments shall be
deemed to be the earlier of the due date for such Assessment or the date
specified by each applicable taxing jurisdiction on which such taxes shall
become a lien on the Demised Premises. Tenant's liability and obligation
hereunder to pay such Assessments shall be fully accrued, fixed and final on
the date of levy thereof subject to the rights to contest any such Assessments
provided in this Article 7. In the event any such Assessments
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shall under law be payable to the applicable taxing authority in a lump sum or
on an installment basis, Tenant shall have the sole right to elect the basis of
legal payment. If Tenant shall elect to pay such Assessments on the
installment basis, then Tenant shall pay those installments which relate to
Assessments payable by Tenant hereunder directly to the applicable taxing
authority.
(e) (1) If any written claim shall be made
against Landlord or if any proceeding shall be commenced against Landlord
(including a written notice of such proceeding) for any Assessments as to which
Tenant may be obligated pursuant to this Article 7, Landlord shall promptly
notify Tenant in writing and shall not take any action with respect to such
claim, proceeding or Assessments without the written consent of Tenant, which
consent shall not be unreasonably withheld or delayed, for 60 days after the
receipt of such notice by Tenant; provided, however, that, in the case of any
such claim or proceeding, if Landlord shall be required by law or regulation to
take action prior to the end of such 60-day period, Landlord shall in such
notice to Tenant, so inform Tenant, and Landlord shall not take any action with
respect to such claim, proceeding or Assessment without the written consent of
Tenant, which consent shall not be unreasonably withheld or delayed, for 10
days after the receipt of such notice by Tenant unless Landlord shall be
required by law or regulation to take action prior to the end of such 10-day
period, in which case Landlord may take any action with respect to such claim,
proceeding or Assessment prior to the end of such 10-day period.
(2) If requested by Tenant within 60
days or such shorter period as specified in 7(e)(1) above, after receipt by
Tenant of the required notice with respect to the claim or proceeding that is
the subject of such notice, or, in the case of any claim or proceeding with
respect to which Tenant (as opposed to Landlord) receives notice, upon the
request of Tenant, Landlord either (i) in the case of an Assessment which may
be contested in the name of Tenant and independently (without joinder,
contribution or otherwise) from any Assessment that is not subject to
indemnification by Tenant, shall permit the Tenant to control or, in the case
of any Assessment, may request the Tenant to control, or (ii) in the case of an
Assessment which must be contested in the name of Landlord, but which may be
contested independently (without joinder, contribution or otherwise) from any
Assessment that is not subject to indemnification by Tenant, shall permit
Tenant to control (so long as, in the good faith judgment of Owner Participant,
there is no reasonable possibility that the Tenant's direction of such contest
could have any adverse impact on the financial or public relations interests of
Landlord or Owner Participant, in which case, Landlord may assert or reassert
control of the contest; provided, however, the foregoing shall not apply to any
property tax contest) any contest described in the foregoing clauses (i) or
(ii) and for so long as Tenant controls the contest being hereinafter referred
to as a "Tenant-Controlled Contest," or (iii) in the case of an Assessment the
contest of which is not a Tenant-Controlled Contest, shall itself, contest in
good faith (including, without limitation, by pursuit of appeals and
administrative procedures) the validity, applicability or amount of such
Assessments. No matter who is in control, a contest, at the election of the
Controlling Party (as defined herein), may include, without limitation, a
challenge to the validity, applicability or amount of such Assessments by (A)
resisting payment thereof, (B) not paying the same except under protest (which
protest must be pursued using reasonable efforts in appropriate administrative
and/or judicial proceedings) if protest shall be necessary and proper or (C) if
payment shall be made, using
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reasonable efforts to obtain a refund thereof in appropriate administrative
and/or judicial proceedings (it being understood that Tenant may appeal to the
United States Supreme Court with the prior written consent of Landlord which
consent shall not be unreasonably withheld); provided, however, that in no
event shall such contest be required or permitted unless: (1) in the case of a
contest which must be contested in the name of Landlord, the amount at issue
(taking into account all similar and logically related claims with respect to
the transactions contemplated by the Operative Documents that have been or
could be raised in an audit by the taxing authority in question for any other
taxable period with respect to which an assessment of a tax deficiency is not
barred by a statute of limitations, including, without limitation, such claims
that may arise in future periods) exceeds $25,000; (2) Tenant shall have agreed
to pay Landlord and shall pay on an After-Tax Basis (as defined in the Master
Indemnification Agreement) as incurred all reasonable out-of-pocket costs and
expenses that Landlord shall incur in connection with the contest of such claim
(including, without limitation, all reasonable costs, expenses, legal and
accounting fees and disbursements); (3) Landlord shall have reasonably
determined that the action to be taken will not result in any material danger
of sale, forfeiture or loss of any of the Demised Premises, the Remainder
Interest or any part thereof or interest therein or the creation of any lien on
any of the Demised Premises, the Remainder Interest or any part thereof or
interest therein, other than any Permitted Liens and that there is no risk of
criminal liability that may be imposed on or with respect to Landlord; (4) if
such contest shall involve payment of the claim, Tenant shall advance the
amount thereof plus, as applicable, interest, penalties and additions to tax
with respect thereto on an interest-free basis (and in the event there is a
determination that such advance represents an interest-free loan, at no
additional net after-tax cost to Landlord but taking into account any net tax
savings associated with such advance); (5) no Event of Default shall have
occurred and be continuing (it being agreed that in such case, Landlord shall
consult in good faith with Tenant to determine whether Tenant can provide to
Landlord reasonably satisfactory security to cover its obligations hereunder
and under Section 2 of the Master Indemnification Agreement with respect to
amounts to be contested and its obligations under the foregoing clause 2 of
this proviso and clause 2 of the first proviso to Section 2(4)(b) of the Master
Indemnification Agreement, in which case, such Event of Default shall not
deprive the Tenant of its contest rights hereunder); (6) in the case of a
contest which must be contested in the name of Landlord, (i) prior to
initiating the contest Tenant shall have furnished Landlord with an opinion of
independent tax counsel selected by the Tenant and reasonably acceptable to
Landlord ("Tax Counsel") to the effect that a Reasonable Basis (as defined in
the Master Indemnification Agreement) exists for such contest and (ii) prior to
the appeal of any adverse judicial determination, Tenant shall have furnished
Landlord with an opinion of Tax Counsel to the effect that it is more likely
than not that there will be a reversal or other substantial favorable
modification of such determination on appeal; and (7) the Tenant shall have
acknowledged in writing its obligation to indemnify Landlord hereunder in the
event the contest is unsuccessful (in whole or in part); provided, however,
that such acknowledgment shall not preclude Tenant from raising a defense to
liability under this Article 7 if a court of competent and proper jurisdiction
has rendered a decision that the cause of the claim is not one for which Tenant
is responsible to pay an Assessment hereunder or an indemnity under Section 2
of the Master Indemnification Agreement. In no event shall Landlord be
required to contest any claim required to be brought in its own name if the
subject matter of such claim
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shall be of a continuing nature and shall have previously been the subject of
an adverse final determination hereunder or under the Master Indemnification
Agreement after exercise by Tenant of its rights pursuant to this Article 7 or
under the Master Indemnification Agreement, unless Tenant shall have delivered
to Landlord an opinion of Tax Counsel to the effect that as a result of a
change in law or fact it is more likely than not that Landlord will prevail in
the contest of such claim.
(3) Tenant shall conduct any
Tenant-Controlled Contest and Landlord shall control any contest other than a
Tenant-Controlled Contest. The party conducting the contest ("Controlling
Party") shall consult in good faith with the other party ("Noncontrolling
Party") and its counsel with respect to the contest of such claim for
Assessments (or claim for refund) but the decisions regarding what actions to
be taken shall be made by the Controlling Party in its sole judgment (exercised
in good faith). In addition, the Controlling Party shall keep the
Noncontrolling Party reasonably informed as to the progress of the contest, and
shall provide the Noncontrolling Party with a copy of (or appropriate excerpts
from) any reports or claims issued by the relevant auditing agents or taxing
authority to the Controlling Party or any affiliate thereof, in connection with
such claim or the contest thereof. The Controlling Party shall be responsible
for the selection of counsel, which counsel must be reasonably satisfactory to
the Noncontrolling Party.
(4) Except as provided in the next
sentence hereof, Landlord shall not settle any contest hereunder without the
consent of Tenant, which consent shall not be unreasonably withheld.
Notwithstanding anything contained in this Article 7, Landlord shall not be
required to contest any claim or permit Tenant to contest any claim and may
settle any contest without the consent of Tenant if Landlord (i) shall waive
its right to reimbursement or indemnity under this Article 7 or under the
Master Indemnification Agreement or otherwise with respect to such claim for
such Assessment (and any claim made by any taxing authority with respect to
other taxable periods that are based, in whole or in part, upon the resolution
of such claim, or the contest of which is materially prejudiced by the
resolution of such claim, it being understood that standing alone the mere
settlement of the claim, in the absence of legal authority to the contrary,
shall not be deemed to be materially prejudicial, but it may be deemed to be
evidence thereof) and (ii) shall pay to Tenant any amount previously paid or
advanced by Tenant pursuant to this Article 7 or under the Master
Indemnification Agreement with respect to such claim for such Assessment or the
contest of such Assessment other than the costs and expenses of the contest of
such claim paid by Tenant in accordance with clause (2) of the first proviso of
Article 7(e)(2) hereof or clause 2 of the first proviso of Section 2(4)(b) of
the Master Indemnification Agreement.
(f) Any amount payable by Tenant to Landlord
pursuant to this Article 7 shall be paid within 30 days after receipt by Tenant
of a written demand therefor from Landlord accompanied by a written statement
describing in reasonable detail the amount so payable, but (except as provided
in Article 7(d) above) shall in no event be payable before the date such
Assessment is due. Any payments made pursuant to this Article 7 shall be made
directly to Landlord or to Tenant, as the case may be, in immediately payable
funds at such bank or to such account as specified by the payee in written
directions to the payor, or, if no such direction shall have been given, by
check of the payor payable to the order of the payee and mailed to the payee by
certified mail, postage prepaid at its address as set forth herein, or in
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the Purchase Agreement or as provided to the payor from time to time in
writing. Any Assessments which are the obligation of Tenant hereunder shall be
payable by Tenant, to the extent allowed, directly to the appropriate taxing
authority on or before the time, and in the manner, prescribed by applicable
Laws without the necessity of any prior demand by Landlord.
(g) If any report, return or statement
("Filing") is required to be filed with respect to any Assessment that is
subject to reimbursement or indemnification under this Article 7 or otherwise,
Tenant shall promptly notify Landlord of such requirement in writing and, if
permitted by applicable Laws and regulations to do so, Tenant shall timely file
or cause to be filed such Filing with respect to such Assessment (except for
any such Filing that Landlord has notified Tenant in writing that Landlord
intends to file) and will (if ownership of the Demised Premises or any part
thereof or interest therein is required to be shown on such Filing) show the
ownership of the Demised Premises in the name of Landlord and send a copy of
such Filing to Landlord; provided, however, that Landlord, at Tenant's request,
shall have furnished the Tenant with such information, not within the control
of Tenant, as is in Landlord's control or is reasonably available to Landlord
and necessary to file such Filing; provided, however, Tenant shall pay all
out-of-pocket expenses of Landlord and Owner Participant in connection
therewith. If Tenant is not permitted by applicable Laws to file any such
Filing, Tenant will promptly notify Landlord of such requirement in writing and
prepare and deliver to Landlord a proposed form of such Filing within a
reasonable time, and in all events at least 15 days prior to the time such
Filing is required to be filed. In the case of any Filing either required to
reflect items in addition to Assessments imposed on Tenant under this Article 7
(or indemnified against by Kmart under Section 2 of the Master Indemnification
Agreement) or which Landlord has notified Tenant in writing that it will
prepare and file, Tenant shall, upon the written request of Landlord, provide
Landlord with such information as is within Tenant's reasonable control or
access. Tenant shall hold Landlord harmless from and against any liabilities,
including, but not limited to penalties, additions to tax, fines and interest,
arising out of any insufficiency or inaccuracy in any such Filing, if such
insufficiency or inaccuracy is attributable to Tenant.
(h) Tenant's obligations provided for in this
Article 7 shall be those of a primary obligor whether or not Landlord shall
also be indemnified with respect to the same matter under the terms of the
Purchase Agreement, the Trust Agreement, the Master Indemnification Agreement
or any other document or instrument and Landlord may in seeking reimbursement
or indemnification from Tenant proceed directly against Tenant without seeking
to enforce any other right of indemnification (it being agreed that the
foregoing is not intended to grant Landlord any right to any double recovery or
indemnity with respect to any claim hereunder for which Landlord has received
(and is entitled to retain) full indemnification). If Tenant shall have fully
reimbursed or indemnified Landlord, then Tenant shall be subrogated to the
rights of Landlord with respect to such reimbursed or indemnified claim.
Tenant further acknowledges and agrees that nothing contained herein is
intended to reduce or impair any rights of Landlord or any other Tax Indemnitee
(as defined in the Master Indemnification Agreement) or any obligations of
Tenant under Section 2 of the Master Indemnification Agreement (including,
without limitation, Tenant's obligations with respect to contest
preconditions).
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(i) Should any of the proceedings referred to in
the preceding paragraphs of this Article 7 result in reducing any amount of
Assessments' liability against the Demised Premises, the Rent or Landlord's
ownership interest in this Lease or in the Demised Premises with respect to
which Tenant has previously made a payment hereunder, Tenant shall be entitled
to receive all net refund amounts paid by the taxing authorities to Landlord
(to the extent attributable to such previously determined Assessments liability
paid by Tenant in accordance with this Article 7) after payment of all of
Landlord's expenses incurred in any such proceeding in which a refund is paid
(including any taxes payable with respect to such refund amount to the extent
such taxes are not creditable or refundable to or deductible by Landlord). Any
subsequent denial, loss or recapture of such refund will be treated as an
Assessment for which the Tenant is responsible hereunder.
(j) Any payment or indemnity to or for the
benefit of Landlord with respect to any Assessment which is subject to payment
and indemnification under this Article 7 shall (A) reflect the current combined
net savings actually realized by Landlord resulting from the current deduction
of such indemnified Assessment and (B) include, after taking into account the
savings described in clause (A), the amount necessary to hold Landlord harmless
on an After-Tax Basis (as defined in the Master Indemnification Agreement).
If, by reason of any Assessment payment made to or for the account of Landlord
by or on behalf of Tenant pursuant to this Article 7 (or the circumstances or
event giving rise thereto), Landlord actually realizes a net tax benefit,
refund, saving, deduction or credit not previously taken into account in
computing such payment, provided no Lease Default or Lease Event of Default has
occurred and is continuing, Landlord shall promptly pay to Tenant an amount
equal to the sum of (I) the actual net reduction in Assessments, if any,
realized by Landlord which is attributable to such net tax benefit, refund,
saving, deduction or credit and (II) the actual net reduction in Assessments,
if any, realized by Landlord as the result of any payment made by Landlord
pursuant to this sentence. Notwithstanding the foregoing, Landlord shall not
be required to make any payment to Tenant pursuant to this Article 7 to the
extent such payment would exceed, in the aggregate at any time, the amount of
all prior payments made by or on behalf of Tenant to Landlord less the amount
of all prior payments made by Landlord to Tenant pursuant to this Article 7,
but any such excess shall reduce pro tanto any amount that Tenant is
subsequently obligated to pay Landlord pursuant to this Article 7. If any
amount otherwise payable to Tenant is not payable by reason of the occurrence
and continuation of a Lease Default or a Lease Event of Default, such amount
shall be payable when such Lease Default or Lease Event of Default is no longer
continuing. The disallowance or reduction of any tax benefit, refund, savings,
deduction or credit with respect to which Landlord has made a payment to Tenant
under this Article 7 shall be treated as an Assessment as to which Tenant is
obligated to pay or reimburse Landlord hereunder.
8. Liability Insurance.
(a) During the Lease Term, Tenant at its sole
expense shall keep Landlord, Landlord's mortgagees, Landlord's ground lessor,
if any, and Tenant insured, under an insurance policy of comprehensive general
liability with broad form (including contractual liability) coverage on an
occurrence form basis, against liabilities of any nature or type whatsoever for
damage to persons or property including loss of life sustained by any person or
persons within or arising out of the Demised
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Premises, including parking areas, sidewalks and driveways (hereinafter
referred to as "Common Areas"), whether caused by Landlord's or Tenant's
negligence or otherwise, in a policy or policies with minimum coverage of Five
Million and No/100 Dollars ($5,000,000.00) with respect to injury to any one
person and Five Million and No/100 Dollars ($5,000,000.00) with respect to any
one accident or disaster, and Five Million and No/100 Dollars ($5,000,000.00)
with respect to damage to property.
(b) All policies of insurance shall be issued by
an insurance company licensed to do business in the state where the Demised
Premises are located, rated in the Best's Insurance Guide as not less than an
A+ "rating classification," and with a XII "financial size category," or
better, or a comparable rating by any successor agency. All such policies
shall bear endorsements to the effect that Landlord, Landlord's mortgagee,
ground lessor, if any, and Tenant are named as additional insureds as their
interests may appear and that all such parties shall be notified not less than
thirty (30) days in advance of any termination, expiration, modification or
cancellation thereof. Said policy or policies shall expressly provide that it
or they are primary insurance and not excess over or contributory with any
valid, existing or applicable insurance in effect for or on behalf of Landlord.
Copies of such policies, so endorsed, or
certificates evidencing the existence thereof, shall be promptly delivered to
Landlord and Landlord's mortgagee, and/or ground lessor, if any, prior to the
commencement date of this Lease and at least thirty (30) days prior to the
expiration of any policy. In the event Tenant fails to effect or maintain such
insurance, Landlord may obtain such insurance and Tenant shall reimburse
Landlord for the cost thereof with interest at the Default Rate from the date
incurred by Landlord.
(c) Tenant also agrees to maintain and keep in
force, during the term hereof, all employees' compensation insurance required
under applicable workers' compensation acts from time to time in existence.
(d) Tenant shall be entitled to self-insure the
aforesaid insurance obligations (including its workers' compensation insurance
to the extent permitted by law) at any time that Kmart has and maintains a
consolidated tangible net worth of at least Seven Hundred Fifty Million and
No/100 Dollars ($750,000,000.00) calculated in accordance with generally
accepted accounting principles ("Net Worth Standard").
9. Options to Extend Lease.
(a) Provided that no Event of Default hereunder
has occurred and is continuing, Tenant shall have six (6) successive options to
extend the term of this Lease for an additional period of five (5) years on
each such option, such extended term(s) to begin respectively upon the
expiration of the prior term(s). The same terms and conditions as herein set
forth shall apply to each such extended term except that the Basic Rent for
each such extended term shall be ninety percent (90%) of the average Basic Rent
paid during the Base Term as set forth in Exhibit C hereto as of the date
hereof and shall be payable semiannually in arrears in equal installments on
each January 1 and July 1, and the Termination Value shall be that in effect on
the last day of the Base Term. If Tenant shall elect to exercise the
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aforesaid options, it shall do so by notice in writing and otherwise in
accordance with the requirements of Article 29 hereof given to Landlord not
less than nine (9) months prior to the expiration of the Base Term of this
Lease or of the Lease Term as extended; provided however, that Tenant agrees to
give twelve (12) months prior notice if it shall elect to exercise the last
five year renewal option. If Tenant shall fail to exercise an option to extend
the term of this Lease, this Lease shall expire upon the expiration of the then
current term and Tenant shall not have any further option to extend the Lease
Term.
(b) Provided that no Event of Default hereunder
has occurred and is continuing, prior to the expiration of the last renewal
term provided for in paragraph (a) above, Tenant may, at its expense, obtain
an appraisal in accordance with the next succeeding sentence to determine the
end of the extended term uninflated fair market value and remaining economic
life of the building, site improvements and personalty. Based upon the
determination of remaining economic life and uninflated residual value, Tenant
shall be granted a number of additional successive five (5) year renewal terms
(or such shorter period as is appropriate in the case of the last such renewal
term) up to the maximum number of years (not to exceed twenty (20) years)
(taking into account the Tenant's right to extend the Lease under paragraph (c)
below) (i) which, taken together with the Interim Term and Base Term and all
prior renewal terms provided for in paragraph (a) above, does not exceed eighty
percent (80%) of the sum of the remaining economic life of the building, site
improvements and personalty and the prior number of years of the Lease Term
(including the Interim Term, Base Term and all renewal terms provided for in
paragraph (a) above) and (ii) at the end of which the remaining fair market
value (without taking into account inflation or deflation, but taking into
account any costs to the Landlord to obtain possession of such property) of the
building, site improvements and personalty equals or exceeds twenty percent
(20%) of Owner Participant's Purchase Price applicable thereto as set forth in
Schedule C of the Purchase Agreement. Such appraisal shall be completed prior
to the sixth (6th) month after Tenant's notice of its intent to exercise an
option to extend. Basic Rent for each of the first two additional renewal
terms pursuant to this paragraph (b) shall equal the Basic Rent payable during
the last year of the Base Term. Basic Rent for each of the remaining
additional renewal terms shall be fair market value rent. Termination Value
for each of the additional renewal terms pursuant to this paragraph (b) shall
be that in effect on the last day of the Base Term.
(c) In the event Tenant has elected not to renew
the Lease upon the expiration of the Base Term or any renewal term, Tenant
shall have the one-time option to extend the last term of this Lease for such
period of time as shall cause the last day of the last term of this Lease to be
the January 31 next succeeding the date upon which the term of this Lease would
expire but for the exercise of this option. This option shall be deemed to
have been exercised by Tenant unless Landlord shall have received notice from
Tenant to the contrary not less than six (6) months prior to the expiration of
the last term of this Lease. Basic Rent during this additional option period
shall be the same rental payable under the terms of this Lease during the
immediately preceding term except that Basic Rent shall be prorated upon a
daily basis for the additional period.
10. Repairs and Maintenance.
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(a) Tenant shall make and pay for all
maintenance, replacement and repair of the Demised Premises on a timely basis
whether foreseeable or not foreseeable, including roof repair and replacement,
necessary to keep all of the Demised Premises, both structural and
non-structural portions, in a good state of repair and tenantable condition,
ordinary wear and tear excepted, in compliance with retail standards applicable
to other similar properties in the marketplace and those owned or leased by
Tenant, applicable Laws, Environmental Laws (as defined in Article 13),
standards of health and safety required by applicable public authorities and
private insurers, and in keeping with the objective of preserving the fair
market value and useful life of the Demised Premises.
Tenant shall pay for all of the costs of
maintaining the Common Areas and common facilities located on the Demised
Premises, including, but not limited to, the following: All amounts paid for
(1) cleaning and re-striping the parking areas, sidewalks and driveways; (2)
repairing, maintaining and replacing paved areas; (3) maintaining, repairing
and replacing planted or landscaped areas; (4) lighting of parking lot
including repair, replacements and maintenance of bulbs and lighting standards
within said Common Areas and lighting fixtures affixed to any building; (5)
paying all wages and salaries of persons directly and actually performing
services described herein; (6) removing rubbish; and (7) removing of ice, snow
and mud.
(b) During the Lease Term, notwithstanding that
fee title to the Demised Premises has been transferred to Landlord, Tenant
acknowledges and agrees that, in addition to Tenant's obligations under this
Lease, Tenant shall comply with all of the terms and conditions of, perform all
obligations of the owner of the Demised Premises and pay all expenses which the
owner of the Demised Premises shall be required to pay in accordance with (i)
all of the Permitted Exceptions as defined in the Purchase Agreement, including
without limitation that certain Reciprocal Easement and Operation Agreement
dated as of August 13, 1992 and recorded on August 25, 1992 in the Jefferson
County Clerk's Office in Book 1315 of Deeds at page 23 (the "REA") and (ii) the
Permitted Liens defined in Article 20(f) hereof ((i) and (ii) herein
collectively referred to as the "Obligation Documents"). Without limiting the
foregoing, in the event the responsible party fails to perform its obligations
under the Obligation Documents with respect to the Common Areas, Tenant shall
perform such obligations and shall charge the responsible party with the
obligations thereunder.
Tenant agrees to provide notice to the responsible
parties under the Obligation Documents such that the responsible parties shall
also notify Landlord of any event which triggers an obligation to provide
Tenant with notice under the terms of the Obligation Documents.
Tenant shall be entitled to retain any and all sums
paid to it as result of performing the duties and obligations of the
responsible party under the Obligation Documents. Tenant's obligations under
this Article 10(b) shall extend to any amendments or modifications of the
Obligation Documents, but only to the extent such amendments or modifications
are beyond the control of Landlord or Tenant has consented to such amendments
or modifications.
Under the terms of Article 13 of the REA, Tenant is
entitled to exercise an "Option to Purchase" "Option Area A" and "Option Area
B" (which option areas are more particularly described in the REA) if certain
conditions contained in the REA
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are met. In the event Tenant exercises these options to purchase either Option
Area A or Option Area B, or both, Tenant will thereafter convey to Landlord
Option Area A and/or Option Area B subject to the terms, conditions,
restrictions and limitations of the REA and this Lease, and Landlord and Tenant
agree to make any amendments or modifications to the Operative Documents
necessary to reflect any conveyance under this Article 10(b).
11. Alterations and Additional Construction.
(a) Tenant may, at its own expense, from time to
time make such alterations and additions, structural or otherwise, in and to
its building as it may deem necessary or suitable and erect or construct
additional buildings or structures on and within any portion of the Demised
Premises; provided, however, that no such alterations, additions, additional
buildings or additional structures shall adversely affect the fair market value
or useful life of the Demised Premises; and provided further that Tenant shall
provide written notice to Landlord together with its drawings and
specifications for structural alterations, additions or additional buildings or
structures and certify that: (i) the new structures shall be built under the
supervision of a certified architect, (ii) the structural integrity of the
existing buildings will not be impaired by such work, (iii) Tenant is complying
with all applicable Laws and the requirements of the Permitted Exceptions as
defined in the Purchase Agreement, (iv) Tenant has obtained any licenses or
permits required, copies of which shall be delivered to Landlord upon request,
and (v) such structural alterations, additions or additional buildings or
structures will not encroach upon any adjacent premises. Tenant shall be
entitled to proceed with such structural alterations, additions or additional
buildings or structures unless Landlord shall have notified Tenant within
fifteen (15) days after its receipt of Tenant's notice that, in Landlord's
reasonable opinion, such structural alterations, additions or additional
buildings or structures diminish the fair market value of the land or the
improvements as originally built. The term "structural alterations," as used
herein, shall not include moving of non-load bearing partitions, minor plumbing
and electrical work, or modification and rearrangement of Tenant's fixtures or
other minor changes of a similar nature. Landlord, at Tenant's cost, shall
cooperate with Tenant in securing building and other permits or authorizations
required from time to time for any work permitted hereunder or installations by
Tenant.
(b) The provisions of this Lease shall apply to
and shall govern Tenant's rights and obligations with respect to all such
alterations, additions, additional buildings or structures and the same shall
be considered part of the Demised Premises. All Assessments levied thereon
shall be paid by Tenant as provided in this Lease. Tenant shall be required to
maintain liability and property insurance on said additional improvements (or
to self-insure) in the same manner as is required in this Lease. In the event
Tenant constructs any such additions or additional buildings or structures,
Landlord shall not be obligated to furnish additional parking areas in
substitution of areas thereby built over.
(c) In connection with any alterations,
additions or erection of additional improvements, Tenant shall perform and
complete all work in a first class workmanlike manner in compliance with
applicable Laws without the imposition of any liens or assessments. Tenant
shall maintain at all times during construction all
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risk builders insurance and comprehensive general liability insurance naming
Landlord and Landlord's mortgagee as additional insureds.
Tenant shall be entitled to self-insure with
respect to the insurance required by the immediately preceding paragraph during
such time that Kmart meets the Net Worth Standard.
(d) All alterations, additions or additional
buildings or structures made or erected by Tenant on the Demised Premises shall
without further act become the property of Landlord (except for the assignment
of Condemnation proceeds expressly provided herein in the second paragraph of
Article 16(d)) and Landlord shall not be required to compensate Tenant
therefor; provided, however, Tenant may claim all tax benefits and incidents
attendant thereto as lessee thereof which Tenant is entitled to claim under
applicable tax law. Tenant will execute any necessary deed or bill of sale
required to convey title thereto to Landlord.
12. Utilities.
Tenant shall pay all charges for all utilities
(including, without limitation, gas, water, oil, sewage, telephone and
electricity) furnished to the Demised Premises during the Lease Term. Tenant
acknowledges and agrees that it shall obtain and use its reasonable efforts to
maintain service with respect to all such utilities at the Demised Premises.
13. Governmental Regulations.
(a) Tenant shall observe and comply in all
material respects with all requirements of laws, rules, codes, orders and
regulations of the federal, state and municipal governments or other duly
constituted public or quasi-public authority applicable to the Demised
Premises, including, but not limited to, all Environmental Laws (as defined
below) and the Americans With Disabilities Act ("ADA"), as amended from time to
time, together with all regulations promulgated thereunder (collectively,
"Laws"). Tenant shall make all alterations or changes to the Demised Premises,
subject to Article 11 hereof, as may be required from time to time to comply
with applicable Laws. Such alterations or changes shall be made in compliance
with and shall be governed by Article 11(b), (c) and (d) and title thereto
shall immediately vest in Landlord.
(b) Tenant shall also comply in all material
respects with all Environmental Laws now or hereafter applicable to the Demised
Premises, or the use, modification, maintenance or operation thereof, and shall
have sole responsibility for the expenses, including legal and other
professional fees and expenses and costs of investigation associated with such
compliance, including compliance with any such Environmental Law directed to
Landlord or to which Landlord may become subject with respect to the Demised
Premises; provided, however, that Tenant shall comply in all respects with all
such Environmental Laws where non-compliance by Tenant could involve an
Environmental Claim in excess of $100,000, or where such non-compliance would
materially interfere with the use or operation of the Demised Premises. For
purposes of this Lease, Environmental Laws shall mean all federal, state, and
local laws, ordinances, rules, regulations, requirements, permits,
authorizations, licenses, approvals, criteria, guidelines, and judicial and
administrative orders,
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decrees, or judgments, now or hereafter in effect, and in each case as amended,
and any judicial or administrative interpretation thereof, relating to the
regulation and protection of human health, safety, the environment and natural
resources including, without limitation, laws (and all other items recited
above) relating to emissions, discharges, releases, threatened releases or
remediation of, or any other response action related to, Hazardous Materials
(as defined in Article 39) or otherwise relating to the generation, use,
treatment, storage, recycling, disposal, transport, or handling of or exposure
to Hazardous Materials. Environmental Laws include but are not limited to the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA"); the Resource Conservation and Recovery Act ("RCRA"); the Federal
Insecticide, Fungicide, and Rodenticide Act; the Toxic Substances Control Act;
the Clean Air Act; the Federal Water Pollution Control Act; the Oil Pollution
Act of 1990; the Endangered Species Act; the National Environmental Policy Act;
the Hazardous Materials Transportation Act; the Occupational Safety and Health
Act; and the Safe Drinking Water Act; each as amended from time to time, and
each of their state and local counterparts or equivalents.
For purposes of this Lease, Environmental Claims
shall mean any and all administrative, regulatory or judicial actions or causes
of action, suits, obligations, liabilities, losses, proceedings, decrees,
judgments, penalties, fees, demands, demand letters, orders, directives, claims
(including any claims involving liability in tort, strict, absolute or
otherwise), liens, notices of non-compliance or violation, and legal fees or
costs of investigations or proceedings, relating in any way to any
Environmental Law or arising from the presence or release (or alleged presence
or release) into the environment of any Hazardous Materials (as defined in
Article 39) (hereinafter "Claims") including, without limitation, and
regardless of the merit of such Claim, any and all Claims by any governmental
or regulatory authority or by any third party for enforcement, cleanup,
removal, containment, restoration, corrective action, response, remedial or
other actions or damages, contribution, indemnification, cost recovery,
compensation or injunctive relief pursuant to any Environmental Law or any
alleged injury or threat of injury to human health, safety, the environment or
natural resources.
14. Landlord to Grant Easements, Dedications, Etc.
Provided that no Event of Default hereunder has
occurred and is continuing, Landlord does hereby and shall, from time to time,
upon thirty (30) days' prior written notice to Landlord and at the request of
Tenant and at Tenant's cost and expense, irrevocably appoint Tenant the
attorney-in-fact of Landlord during the term of this Lease, subject to the
proviso contained in this sentence and the provisions of the succeeding
sentence, to (i) grant easements and other rights in the nature of easements,
(ii) release existing easements or other rights in the nature of easements
which are for the benefit of the Demised Premises, (iii) dedicate or transfer
unimproved portions of the Demised Premises for road, highway or other public
purposes, (iv) execute petitions to have the Demised Premises annexed to any
municipal corporation or utility district, (v) execute amendments to any
covenants and restrictions affecting the Demised Premises, and Landlord shall
execute and deliver to any person any instrument appropriate to confirm or
effect such grants, releases, dedications and transfers (to the extent of its
interest in the Demised Premises); provided, however, that the rights granted
to Tenant pursuant to the provisions of this paragraph are subject to 30 days'
prior written notice to Landlord
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which notice shall include (x) a certificate of Tenant describing such grant,
release, dedication, transfer, petition or amendment and stating that such
grant, release, dedication, transfer, petition or amendment is not detrimental
to the proper conduct of the business of Tenant on the Demised Premises, the
consideration, if any, being paid for such grant, release, dedication,
transfer, petition or amendment, and that such grant, release, dedication,
transfer, petition or amendment does not materially impair the useful life of
the Demised Premises or materially reduce the fair market value, and (y) duly
authorized and binding undertakings of Tenant that it will remain obligated
hereunder to the same extent as if such grant, release, dedication, transfer,
petition or amendment had not been made (including, without limitation, the
obligation to pay all Rent in accordance with the terms hereof), and that
Tenant will perform all obligations of Landlord under such instrument. In the
case of those grants, releases, dedications, transfers or amendments referred
to in subparagraphs (i), (iii) and (v) of the preceding sentence, the prior
written approval of Landlord shall be required (which approval shall not be
unreasonably withheld or delayed), provided if Tenant requests such approval in
writing and Landlord has not approved or disapproved the same within thirty
(30) days of such request, it shall be deemed approved, and provided further,
if such grants, releases, dedications, transfers or amendments do not by their
respective terms extend beyond the expiration or earlier termination of this
Lease, the approval of Landlord shall not be required. The consideration, if
any, received by Landlord or Tenant for such grant, release, dedication,
transfer, petition or amendment shall be applied pursuant to Article 16, as if
such consideration were net proceeds from an event of Condemnation.
15. Insurance; Damage to Demised Premises.
(a) From and after the commencement of the Lease
Term, Tenant shall insure the buildings and improvements on the Demised
Premises, including Tenant's buildings, against damage or destruction by fire
and other casualties under a policy of insurance including broad form,
extended coverage all risk endorsements (without exclusions). Such
endorsements shall be subject to annual review by Landlord to identify
additional coverages payable by Tenant made necessary by market conditions or
made available by insurers of similar improvements for risks now or hereafter
deemed commercially reasonable to insure. Said insurance shall be in an amount
equal to not less than one hundred percent (100%) of the full insurable
replacement value of the Demised Premises. At any time during the term of this
Lease that Tenant is not self-insuring pursuant to the terms of this Article,
Tenant shall obtain at its sole cost and expense and deliver to Landlord every
three (3) years during the Lease Term an independent appraiser's or engineer's
certification of the full replacement cost of the Demised Premises. In no
event shall the deductible amount under such policies of insurance exceed One
Hundred Thousand and No/100 Dollars ($100,000.00) in the aggregate.
(b) Landlord and Landlord's mortgagee shall be
named as loss payees and additional insureds thereunder. All required
insurance policies shall bear endorsements to the effect that Landlord and
Landlord's mortgagee and ground lessor (if any) shall be notified not less than
thirty (30) days in advance of modification or cancellation thereof and that
Tenant has waived any right of recovery from Landlord. Such policies shall
contain no condition to disbursement of proceeds based on actual restoration of
the Demised Premises and shall provide that such insurance
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is primary insurance and not excess over or contributory with any valid,
existing or applicable insurance in effect for or on behalf of Landlord.
Copies of such insurance policies or certificates evidencing the existence
thereof so endorsed, or a certificate of self-insurance evidencing Tenant's
election to self-insure such obligations, shall be promptly delivered to
Landlord prior to commencement of the Lease Term and at least thirty (30) days
prior to the expiration of any policy. Any policy of insurance shall be issued
by an insurance company licensed to do business in the state where the Demised
Premises are located rated in the Best's Insurance Guide as not less than an A+
"rating classification" and with a XII "financial size category," or better or
rated by a successor agency at comparable ratings. At any time during the term
of this Lease that either respective rating shall fall below A+ or XII (or such
comparable ratings of any successor agency), Tenant shall obtain insurance from
a replacement insurer carrying an A+ and XII rating or comparable rating.
(c) Tenant shall be entitled to self-insure its
aforesaid insurance obligations at any time that Kmart meets the Net Worth
Standard.
(d) Irrespective of the cause thereof, Landlord
shall not be liable for any loss or damage to said buildings resulting from
fire, explosion or any other casualty. In the event of Tenant's failure to
obtain or maintain the insurance called for under this Lease, Landlord shall
have the right, together with Landlord's remedies set forth herein, to obtain
the policies of insurance required under this Lease and to bill Tenant for the
premium payments therefor, together with interest at the Default Rate. Landlord
shall have no obligation to maintain insurance of any nature or type
whatsoever on the Land described in Exhibit A, any improvements thereon owned
by Landlord or Tenant or the Demised Premises and neither Tenant nor Tenant's
insurer shall have any rights to direct actions or subrogation against any
policy of insurance obtained by Landlord.
(e) In the event that, at any time during the
Lease Term, the building and/or site improvements included in the Demised
Premises shall be damaged or destroyed (partially or totally) by fire, the
elements or any other casualty, whether insured or not, Tenant shall without
abatement of Rent, at its expense, promptly and with due diligence repair,
rebuild and restore the same as nearly as practicable to the condition existing
just prior to such damage or destruction consistent with the maintenance and
repair obligations of Tenant in Article 10 of this Lease. At any time that
Kmart meets the Net Worth Standard or in the event of a loss below Two Hundred
Fifty Thousand and No/100 Dollars ($250,000.00), insurance proceeds shall be
released to Tenant for restoration and repair; otherwise Landlord's mortgagee
shall have the right to receive any insurance settlement fund in escrow subject
to disbursement pursuant to the terms set forth in Article 17 hereof.
(f) Notwithstanding the foregoing paragraph, in
the event of a substantial or total casualty of such building or improvements,
Tenant may give written notice to Landlord within thirty (30) days after such
damage or destruction of its intention to terminate this Lease and Tenant shall
simultaneously make and deliver to Landlord Tenant's Purchase Offer in
accordance with Article 41 hereof. In the event Landlord rejects Tenant's
Purchase Offer pursuant to Article 41, all proceeds of insurance or
self-insurance, as the case may be, shall be paid to Landlord on the Purchase
Offer Termination Date together with all other amounts specified in Article
41(c). In the
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event Landlord accepts Tenant's Purchase Offer, all such insurance proceeds
shall be paid to Tenant on the Purchase Offer Termination Date.
16. Eminent Domain.
(a) In the event of (i) a permanent Condemnation
of all of the Demised Premises, (ii) a temporary Condemnation of all or any
portion of the Demised Premises, or a permanent Condemnation of any substantial
portion of the Demised Premises (which, in either case, is sufficient in
Tenant's judgment to render the Demised Premises unsuitable for the use and
occupancy of Tenant), or (iii) a Condemnation of the points of ingress-egress
to the public roadways in existence on the date hereof such that they shall be
materially impaired (with no reasonable replacement points of ingress-egress
provided so as to render the Demised Premises unsuitable for its intended use),
Tenant shall deliver to Landlord Tenant's Purchase Offer in accordance with
Article 41 hereof within thirty (30) days (or, with respect to a Condemnation
of less than all the Demised Premises, ninety (90) days) after the entry of a
final order of taking. In the event Landlord rejects Tenant's Purchase Offer
pursuant to Article 41 and provided that the parties have satisfied their
obligations under Article 41, the Condemnation proceeds shall be paid to
Landlord on the Purchase Offer Termination Date, together with all other
amounts specified in Article 41(c) (except as otherwise provided in paragraph
(d) below). In the event Landlord accepts Tenant's Purchase Offer pursuant to
Article 41 and provided that the parties have satisfied their obligations under
Article 41, Landlord shall assign the Condemnation proceeds to Tenant on the
Purchase Offer Termination Date.
For purposes hereof, a "Condemnation" shall mean a
condemnation, confiscation, seizure, requisition or other taking or sale of the
use or occupancy of, or title to the Demised Premises pursuant to the power of
eminent domain or through a deed in lieu of condemnation.
(b) In the event of a taking of any portion of
the Demised Premises constituting less than a substantial portion, this Lease
shall continue as to that portion of the Demised Premises which shall not have
been taken, in which event Tenant shall promptly and with due diligence restore
the Demised Premises to as nearly as practicable the condition which existed
just prior to such taking, consistent with the maintenance and repair
obligations of Tenant under Article 10 of the Lease. At any time that Kmart
meets the Net Worth Standard or in the event of an award of less than Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00) the Condemnation award
shall be released to Tenant for restoration; otherwise Landlord's mortgagee
shall take possession of such award to disburse payment to Tenant pursuant to
the terms set forth in Article 17 hereof.
(c) Without limiting the foregoing, in the event
a portion of the Land shall be subject to a permanent Condemnation by public or
quasi-public authority, Tenant shall make reasonable efforts to substitute
equivalent and similarly improved lands contiguous to and properly integrated
with the remainder of the site depicted on Exhibit B. Any substitute land
together with the remaining Demised Premises shall meet the standards set forth
in Article 42 hereof. Tenant shall be entitled to receive the Condemnation
award to the extent required to acquire substitute land subject to the rights
of Landlord's mortgagee as above stated. Any such land acquired by Tenant
shall be part of the Demised Premises subject to this Lease, and
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an Estate for Years interest therein shall vest in Landlord subject to this
Lease. Tenant shall take all actions necessary to vest title to such land in
Landlord.
If Tenant shall be unable to substitute such lands
and if one or more Condemnations shall in total deprive Tenant of any
substantial portion of the Demised Premises which is sufficient in Tenant's
judgment to render the remaining portion thereof unsuitable for the use or
occupancy of Tenant, then, in such event, subsection (a) of this Article 16
above shall apply.
(d) Tenant's obligation to restore the Demised
Premises in the event of a partial taking is not conditioned upon the adequacy
of the Condemnation proceeds to complete such restoration. In the event of an
inadequate award, the amount of such award held by the Proceeds Trustee shall
be disbursed pro rata until completion of restoration pursuant to the terms set
forth in Article 17 hereof. Tenant shall fund the deficits in the pro rata
progress payments disbursed by the Proceeds Trustee in accordance with Article
17 hereof. In the event the Condemnation proceeds exceed the actual cost of
restoration, the Proceeds Trustee shall have the right to retain the excess
proceeds and apply the same in accordance with the Note Indenture or, if
Landlord's Debt is no longer outstanding, such excess proceeds shall be paid to
Landlord. Termination Values hereunder shall be correspondingly adjusted by
such excess amount; provided that no adjustment shall be required hereunder
unless the excess proceeds exceed $100,000.
In the event that at the time of any Condemnation
of the buildings on the Demised Premises, Tenant shall not have fully amortized
expenditures which it may have made on account of any improvements, alterations
or changes to such buildings after the date hereof or if Tenant shall have
suffered a loss of business, Landlord shall assign to Tenant that portion of
any award payable as a result of such taking as shall be expressly attributed
by the terms of such award (i) to such loss of business or (ii) to the
unamortized portion of Tenant's expenditures; provided that in no event shall
the award otherwise payable to Landlord be diminished in any manner by an
amount allocated to Tenant.
17. Insurance Proceeds, Claims Settlement.
(a) In the event of loss or damage to the
Demised Premises, Tenant shall promptly notify Landlord thereof in writing and
shall prepare and present timely claims (unless Tenant is at the time
self-insuring the risk for which such claim would be presented) to the
appropriate insurers on behalf of Tenant, Landlord and Landlord's mortgagee.
Tenant shall adjust and settle such non-self-insured claim, provided that if
Tenant has failed to settle such claims within three (3) years of the event of
loss or damage, then Landlord and/or its mortgagee shall have the right to
adjust and settle such claims. At any time Kmart does not meet the Net Worth
Standard and the claim for damage to the Demised Premises involves net proceeds
of more than Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), no
settlement shall be made without Landlord's consent, which will not be
unreasonably withheld or delayed, and Landlord and its mortgagee shall be
entitled to participate in the adjustment process.
(b) In the event the net proceeds of any such
claim are not in excess of Two Hundred Fifty Thousand and No/100 Dollars
($250,000.00), such proceeds shall be
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payable to Tenant. In the event the net proceeds are in excess of Two Hundred
Fifty Thousand and No/100 Dollars ($250,000.00) and Kmart does not meet the Net
Worth Standard, such sum shall be paid to Note Trustee, or at such time as
Landlord's Debt is no longer outstanding, to such other person mutually
agreeable to Landlord and Tenant (herein called the "Proceeds Trustee") as
trustee for Landlord and Tenant and disbursed in the manner hereinafter
provided. Insurance proceeds shall be deposited in an interest bearing account
and shall be distributed to Tenant upon progress of completion of restoration,
repair, replacement or rebuilding, provided no Event of Default has occurred
and is continuing hereunder. Insurance proceeds shall be disbursed to Tenant
by the Proceeds Trustee upon receipt by Landlord and Proceeds Trustee of the
following:
(1) A certificate signed by Tenant, dated not
more than thirty (30) days prior to the application for
such disbursement, setting forth in substance the
following:
(i) that the sum then requested to be
disbursed either has been paid by Tenant or is
justly due to contractors, subcontractors,
materialmen, engineers, architects or other persons
who have rendered and furnished certain labor and
materials for the work; giving a brief description
of such services and materials and the principal
subdivisions or categories thereof and the amounts
so paid or due to each of said persons in respect
thereof, and stating the progress of the work up to
the date of said certificate;
(ii) that the sum then requested to be
disbursed, plus all sums previously disbursed, does
not exceed the cost of the work as actually
accomplished up to the date of such certificate;
(iii) that except for the amounts, if any,
stated in said certificate pursuant to the
foregoing clause (i) of this paragraph to be due
for services or materials, there is no outstanding
indebtedness known to the person signing the
certificate, after due inquiry, which is then due
and payable for work, labor, services and materials
in connection with the work, which, if unpaid,
might become the basis of a vendor's, mechanic's,
laborer's, materialman's statutory or similar lien
upon Tenant's leasehold estate or Tenant's or
Landlord's interest in the Demised Premises or any
part thereof;
(iv) that all materials and all property
described in the certificate are free and clear of
all liens and encumbrances; and
(v) that the amount remaining in the
possession of the Proceeds Trustee after
disbursement of the sum then requested at least
equals the estimated unpaid costs to complete work
(and if insufficient funds remain, Tenant shall
deposit additional funds with the Proceeds Trustee
sufficient to enable Tenant to make the foregoing
certification).
(2) Evidence reasonably satisfactory to the
Proceeds Trustee and Landlord showing that there has not
been filed with respect to Tenant's leasehold estate or
Tenant's or Landlord's interest in the Demised Premises or
any part thereof
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any vendor's, mechanic's, laborer's or materialmen's
statutory or similar lien which has not been discharged of
record, except such as will be discharged upon payment of
the amount then requested to be disbursed, or affirmative
title insurance coverage over such liens.
(3) Lien waivers from each person entitled to a
mechanics' or materialmen's lien against the Premises by
reason of such work, or affirmative title insurance over
all such inchoate liens.
Upon compliance with the foregoing provisions, the
Proceeds Trustee shall, out of the deposited sums,
disburse to the persons named in the certificate the
respective amounts stated in said certificate to be due to
them and/or shall disburse to Tenant the amount stated in
said certificate to have been paid by Tenant.
(c) At any time after the completion in full of
the work, the whole balance of the deposited sums not theretofore disbursed
pursuant to the foregoing provisions of this Article 17 shall be disbursed to
or upon the order of Tenant, upon receipt by the Proceeds Trustee of (1) a
certificate signed by Tenant, dated not more than thirty (30) days prior to the
application of such disbursement, setting forth in substance the following to
the best knowledge of Tenant, after due inquiry, (i) that the work has been
completed in full in compliance with this Lease; (ii) that all amounts which
Tenant is or may be entitled to have disbursed under the foregoing provisions
of this Article 17 on account of services rendered or materials furnished in
connection with the work have been disbursed under said provisions, and (iii)
that all amounts for whose payment Tenant is or may become liable in respect of
the work have been paid in full except to the extent, if any, of any retainage
and which retainage shall be applied to the final payments of the amounts due,
(2) a copy of the final plans and specifications of the improvements on the
Demised Premises, which plans and specifications shall be delivered to
Landlord, (3) an official search or a certificate of a title company reasonably
satisfactory to the Proceeds Trustee showing that there has not been filed with
respect to Tenant's leasehold estate or Tenant's or Landlord's interest in the
Demised Premises or any part thereof, any vendor's mechanic's, laborer's or
materialmen's statutory or similar lien which has not been discharged of record
or for which affirmative insurance has not been provided, and (4) a final
certificate of occupancy or equivalent governmental approval.
Any insurance proceeds remaining after completion
of the reconstruction as specified shall be paid to Tenant. If the conditions
for the release of money to Tenant are not met after a period of three (3)
years after the date of completion of reconstruction (such three-year period to
be extended by the length of any delay caused by reasons beyond the control of
Tenant), any funds held by the Proceeds Trustee shall be disbursed to Landlord.
18. Use, Assignment and Subletting.
The Demised Premises may be used for any lawful
purposes except that no use may be made (whether by Tenant or any assignee or
subtenant of Tenant or otherwise) which: (1) is a public nuisance, (ii) causes
the Demised Premises to become "tax-exempt use property" within the meaning of
Section 168(h) of the Internal Revenue
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Code, as amended, or any successor statute thereto ("Code") or "tax-exempt bond
financed property" within the meaning of Section 168 (g)(5) of the Code, (iii)
would void any certificate of occupancy required for the Demised Premises, (iv)
makes it impossible to obtain or results in the cancellation of policies of
insurance required by this Lease, (v) involves the mining or removal of any
oil, gas or minerals which mining or removal is conducted from or through the
surface of the Land, or (vi) increases the risk of environmental liability to
Landlord; provided, however, (but without limiting Tenant's obligations under
Articles 13 and 39) that any retail or office use shall not be deemed to
increase the risk of environmental liability for purposes of this provision.
Notwithstanding the foregoing use restrictions, any use of the Demised Premises
in violation of subsection (v) above by an unrelated third party not acting at
the direction, under the control or with the permission of Tenant shall not
give rise to a default hereunder but, in such event, Tenant shall be required
to make a Tenant's Purchase Offer in accordance with Article 41 hereof.
Tenant may assign this Lease or sublet the whole or
any part of the Demised Premises provided that Tenant shall remain fully and
primarily liable for the performance of Tenant's obligations hereunder.
Tenant's liability hereunder shall continue notwithstanding the rejection of
this Lease or any sublease of this Lease pursuant to Section 365 of Title 11 of
the United States Code or any similar law relating to bankruptcy, insolvency,
reorganization or the rights of creditors, which arises subsequent to such
assignment. In the event Tenant assigns this Lease and it shall thereafter be
rejected in a bankruptcy or similar proceeding, a new lease identical to this
Lease shall be reinstituted as between Landlord and Tenant without further act
of either party. Nothing herein shall be construed to permit Tenant to
mortgage, pledge, hypothecate or encumber in any manner or nature whatsoever
Tenant's interest under this Lease in whole or in part. Tenant shall provide
notice to Landlord of such assignment or sublease within fifteen (15) days
prior to the effective date thereof.
19. Signs.
(a) The Demised Premises shall be referred to
only by such designation as Tenant may indicate. Landlord expressly recognizes
that the service mark and trademark "Kmart" is the valid and exclusive property
of Tenant, and Landlord agrees that it shall not either during the term of this
Lease or thereafter directly or indirectly contest the validity of said mark
"Kmart," or any of Tenant's registrations pertaining thereto in the United
States or elsewhere, nor adopt or use said mark or any term, word, mark or
designation which is in any aspect similar to the mark of Tenant. Landlord
further agrees that it will not at any time do or cause to be done any act or
thing directly or indirectly, contesting or in any way impairing or tending to
impair any part of Tenant's right, title and interest in the aforesaid mark,
and Landlord shall not in any manner represent that it has an ownership
interest in the aforesaid mark or registrations therefor, and specifically
acknowledges that any use thereof pursuant to this Lease shall not create in
Landlord any right, title or interest in the aforesaid mark.
(b) Tenant shall have the option to erect,
subject to applicable Laws and matters of title to which this Lease is
subordinate, and at its sole cost and expense, upon any portion of the Demised
Premises signs of such height and other dimensions, bearing such legend or
inscription as Tenant shall determine. Tenant
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shall have the option to utilize the lighting standards in the parking lot for
advertising purposes by attaching, or causing to be attached, signs advertising
any and all products and services as Tenant shall elect provided same are in
compliance with all applicable Laws. Provided no Event of Default hereunder
has occurred and is continuing, Tenant shall be entitled to remove any signs,
billboards or posters to which it has not consented in writing and to prohibit
the same to be displayed on any portion of the Demised Premises.
20. Ingress and Egress; Liens.
Landlord represents and warrants that it will not
interfere with the ingress and egress facilities to the adjoining public
streets and highways in the number and substantially in the locations as in
existence on the date hereof as depicted on Exhibit B.
Tenant covenants and agrees that it shall not,
during the Lease Term, directly or indirectly create, incur, assume, suffer or
permit any lien on or with respect to the Demised Premises or any part thereof,
any Rent, title thereto or interest therein except for Permitted Liens (as
herein defined). Tenant shall promptly, but no later than thirty (30) days
after the attachment thereof, at its own expense, discharge or eliminate or
bond in a manner satisfactory to Landlord any such lien. In the event such
lien is not so discharged, eliminated or bonded, Landlord may pay and discharge
the same and relieve the Demised Premises therefrom, and Tenant agrees to repay
and reimburse Landlord upon demand for the amount so paid by Landlord together
with interest thereon at the Default Rate.
"Permitted Liens" shall mean (a) the respective
rights and interests of Tenant, Landlord, Owner Participant, Remainder
Purchaser, Note Trustee, Bond Trustee, the Issuer, each REMIC (as defined in
the Bond Indenture) and any holder of a lien for the benefit of the holders of
Landlord's Debt as provided in the Operative Documents; (b) Lessor Liens and
Remainder Purchaser Liens (as defined below); (c) liens for taxes and
assessments that either are not yet due and payable or are being contested in
good faith and by appropriate proceedings diligently conducted, so long as such
proceedings do not (i) subject the Demised Premises or interest therein to
foreclosure, forfeiture or loss or result in the sale of the Demised Premises
or interest therein, (ii) materially interfere with the use, possession or
disposition of the Demised Premises or interest therein, (iii) interfere with
the payment of Rent or (iv) involve any risk of loss of the priority of the
lien of the Note Indenture; (d) materialmen's, mechanics', workers',
repairmen's, employees' or other like liens arising after the date hereof in
the ordinary course of business for amounts either not yet due or being
contested in good faith and by appropriate proceedings so long as such
proceedings shall not involve any risk of the sale, forfeiture or loss of any
part of the Demised Premises, the Trust Estate, title thereto or any interest
therein and shall not materially interfere with the use, occupancy or
disposition of the Demised Premises or the Trust Estate or interfere with the
payment of Rent or involve any risk of loss of the priority of the lien of the
Note Indenture; (e) Liens arising after the date hereof out of judgments or
awards with respect to which at the time an appeal or proceeding for review is
being prosecuted diligently and in good faith and which either have been bonded
to the satisfaction of Landlord and Note Trustee or the enforcement of which
has been continuously stayed pending such appeal or review; (f) easements,
rights-of-way, reservations, servitudes and rights of others
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against the Land which (i) are defined as Permitted Exceptions in the Purchase
Agreement or (ii) are granted pursuant to the specific provisions of the Lease;
and (g) assignments, leases and subleases expressly permitted by the Operative
Documents.
For purposes of this Lease, "Remainder Purchaser
Liens" shall mean Liens on or against the Property, the Lease or any payment of
Rent (a) which result from any act of, or any claim against, Remainder
Purchaser unrelated to the transactions contemplated by the Purchase Agreement
or which result from any violation by Remainder Purchaser of any of the terms
of the Operative Documents or (b) which result from Liens in favor of any
taxing authority by reason of any Tax owed by Remainder Purchaser, the payment
of which is not the obligation of Tenant or Kmart under the Operative
Documents.
21. Tenant Defaults.
The following shall constitute an Event of Default
by Tenant under this Lease (each, herein referred to as an "Event of Default"):
(i) failure to pay any installment of Basic Rent within five (5) days after
notice to Tenant and Kmart the same is due; (ii) failure to make any payment
constituting Additional Rent within fifteen (15) days after notice of
non-payment to Tenant and Kmart; (iii) failure to maintain any insurance
required to be maintained hereunder, (iv) Tenant's failure to perform any of
its other covenants or obligations under this Lease or Kmart's failure to
perform any of its covenants or obligations under the Master Indemnification
Agreement or Sections 12E, 12F and 12H of the Purchase Agreement within thirty
(30) days after notice thereof to Tenant and Kmart provided that any
non-monetary default that is curable but is not susceptible to a cure within
thirty (30) days shall not be deemed a default if a cure is commenced within
thirty (30) days after notice and is diligently pursued thereafter; provided
further that in no event shall such cure period for a non-monetary default
exceed one hundred and eighty (180) days; (v) the filing of an insolvency,
debtor's rights, bankruptcy or similar proceeding with respect to Tenant or by
Kmart either voluntarily or involuntarily or Tenant or by Kmart is adjudicated
bankrupt or makes a general assignment for the benefit of its creditors, which
in the case of an involuntary petition is not dismissed within ninety (90) days
after the date of filing; and (vi) any breach of a representation by Tenant in
this Lease or by Kmart in the Purchase Agreement or in any certificate
expressly required to be delivered pursuant hereto or thereto which (A) shall
be incorrect when discovered and shall have a material adverse affect on
Landlord, Owner Participant or Landlord's interest in the Property, or (B) is a
material breach of a representation in the Purchase Agreement relating to
Kmart's financial condition, and which in either case shall not have been cured
within thirty (30) days after receipt of written notice by Tenant and Kmart
from Landlord, unless the default is curable and Tenant or Kmart shall be
diligently proceeding to correct such failure; provided that in no event shall
such cure period extend beyond one hundred eighty (180) days from the date of
such notice.
Notwithstanding anything stated herein to the
contrary, to the extent any failure by Tenant or Kmart to perform any covenant
or obligation or breach of a representation or warranty relates to a property
other than the Demised Premises, it shall not give rise to an Event of Default
hereunder.
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22. Landlord Remedies.
If an Event of Default has occurred and is
continuing beyond any applicable cure periods, Landlord shall be entitled to:
(a) Re-enter the Demised Premises without
terminating the Lease and remove Tenant from possession of the Demised Premises
and all of Tenant's property therefrom at Tenant's expense, and Tenant shall
remain liable for the equivalent of the amount of rent reserved for the balance
of the Lease Term less the avails of reletting by Landlord, if any, after
deducting therefrom the reasonable cost of arrears, alterations necessary to
prepare for reletting and for leasing commissions payable in procuring the
substitute lease and Tenant shall also be liable for and shall pay the
Make-Whole Premium and Break Amount, if any, required to be paid by Landlord
under Section 8.10(c) of the Note Indenture in the event Landlord shall have
elected to purchase the Notes without terminating the Lease; or
(b) Terminate this Lease and demand, by written
notice to Tenant specifying a date ("Final Payment Date") not earlier than ten
(10) days after the date of such notice, that Tenant pay to Landlord, and
Tenant shall pay to Landlord, on the Final Payment Date, as liquidated damages
for loss of a bargain and not as a penalty (the parties agreeing that
Landlord's actual damages would be difficult to predict and the liquidated
damages amounts below represent a reasonable approximation of such amount) (in
lieu of Rent due after the Final Payment Date), an amount equal to the sum of
(A)(I) if the Final Payment Date is a Rent Payment Date, all accrued and unpaid
Basic Rent payable in arrears and due and unpaid as of the Final Payment Date
or (II) if the Final Payment Date is not a Rent Payment Date, the arrears Basic
Rent accrued as of such Final Payment Date (it being understood, in the case of
clauses (I) and (II) above, that Tenant shall pay when due any Basic Rent in
arrears due on a Rent Payment Date which occurs on or after the Event of
Default but prior to the Final Payment Date), plus (B) all Additional Rent due
and payable, plus (C) all other amounts due on Landlord's Debt as of the Final
Payment Date (including an amount equal to any Make-Whole Premium and Break
Amount) which shall not be covered by payments made pursuant to clauses (A) or
(B) above or (D) below, plus (D) whichever of the following amounts Landlord,
in its sole discretion, shall specify in such notice (together with interest on
such amount at the Default Rate from the Final Payment Date specified in such
notice to the date of actual payment):
(i) an amount equal to the excess, if any, of
the Termination Value for the Demised Premises computed as
of the Final Payment Date, over the fair market sales
value of the Demised Premises as of the Final Payment Date
(such fair market sales value to be determined by mutual
agreement of Landlord and Tenant or, if they cannot agree
within ten (10) days after such notice, by an appraisal);
(ii) an amount equal to the excess, if any, of
the Termination Value for the Demised Premises computed as
of the Final Payment Date over the present value of the
fair market rental value for the Demised Premises for the
balance of the Lease Term discounted semiannually at a six
percent (6%) annual interest rate (such fair market rental
value to be determined by mutual agreement of Landlord and
Tenant or, if they cannot agree within ten (10) days of
such notice, by an appraisal);
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(iii) an amount equal to the excess of (A) the
present value as of the Final Payment Date of all
installments of Basic Rent through the end of the Base
Term or the then applicable renewal term, discounted
semiannually at a six percent (6%) annual interest rate
over (B) the present value as of such Final Payment Date
of the fair market rental value of the Demised Premises
(such fair market rental value to be determined by mutual
agreement of Landlord and Tenant or, if they cannot agree
within ten (10) days of such notice, by an appraisal)
through the end of the Base Term or the then applicable
renewal term, discounted semiannually at a six percent
(6%) annual interest rate; or
(iv) an amount equal to the greater of (A)
Termination Value determined as of the Final Payment Date,
(B) the discounted Basic Rent computed as of the Final
Payment Date as set forth in clause (iii) of this Article
and (C) the fair market sales value computed as of the
Final Payment Date as set forth in clause (i) of this
Article.
Upon payment of the amounts set forth in
clauses (A), (B), (C) and subsection (iv) of clause (D) of
this Article 22, Landlord shall convey to Tenant all of
Landlord's right, title and interest in and to the Demised
Premises, without recourse or warranty, subject to all
matters of record other than Lessor Liens.
23. Bankruptcy.
If an Event of Default described in Article 21(v)
occurs, then Landlord may terminate this Lease by giving notice to Tenant and
Kmart of its intention so to do; provided, however, neither bankruptcy,
insolvency, an assignment for the benefit of creditors nor the appointment of a
receiver shall affect this Lease or permit its termination so long as the
covenants on the part of Tenant to be performed shall be performed by Tenant or
Kmart or a person or entity claiming under Tenant or Kmart. In the event Basic
Rent and Additional Rent are not paid as herein provided after the filing of a
petition in bankruptcy or any arrearage in Rent is not made whole, the Lease
shall be immediately terminated and Landlord shall be free to pursue its
remedies set forth in Article 22.
24. Covenant of Title.
Landlord covenants that it and any person
rightfully claiming by, through or under Landlord, shall not interfere with
Tenant's quiet enjoyment and use of the Demised Premises and all rights,
easements, appurtenances and privileges belonging or in any way appertaining
thereto during the Lease Term, provided that no Event of Default shall have
occurred and be continuing.
25. Landlord Exculpation.
Anything to the contrary in this Lease
notwithstanding, the covenants contained in this Lease to be performed by
Landlord shall not be binding personally, but instead said covenants are made
for the purpose of binding only all of Landlord's right, title and interest in
and to the Demised Premises and the Option Agreement (as defined in the
Purchase Agreement) with respect to the Land and Landlord shall have no
liability under this Lease in excess of, and Tenant shall have no recourse
against
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Landlord except with respect to, Landlord's interest in the Demised Premises
and the Option Agreement.
26. Remedies Cumulative.
To the extent permitted by, and subject to the
mandatory requirements of, applicable Laws, each and every right, power and
remedy herein specifically given to Landlord or otherwise in this Lease shall
be cumulative and shall be in addition to every other right, power and remedy
herein specifically given or now or hereafter existing at law, in equity or by
statute, and each and every right, power and remedy whether specifically herein
given or otherwise existing may be exercised from time to time and as often and
in such order as may be deemed expedient by Landlord. No delay or omission by
Landlord in the exercise of any right, power or remedy or in the pursuit of any
remedy shall impair any such right, power or remedy or be construed to be a
waiver of any default on the part of Tenant or to be an acquiescence therein.
Landlord's consent to any request made by Tenant shall not be deemed to
constitute or preclude the necessity for obtaining Landlord's consent, in the
future, to all similar requests. No waiver by Landlord of any default shall in
any way be, or be construed to be, a waiver of any future or subsequent
default.
27. Estoppel Letters.
Tenant will execute, acknowledge and deliver to
Landlord, within fifteen (15) days of a good faith request by Landlord and
Landlord will execute, acknowledge and deliver to Tenant, within fifteen (15)
days of a good faith request by Tenant a certificate in the form attached
hereto as Exhibit E and incorporated by reference herein executed by an
authorized officer of Tenant or Landlord, certifying (a) that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that this Lease is in full force and effect, as modified, and stating the
modifications); (b) that Tenant has accepted possession of the Demised Premises
and the date on which the Lease Term commenced and will expire; (c) as to the
amount of any prepaid Rent or any credit due to Tenant hereunder; and (d) as to
whether, to the best of such party's knowledge, information and belief, the
requesting party is then in default in performing any of its obligations
hereunder (and, if so, specifying the nature of each such default); and (e) as
to any other fact or condition reasonably requested by the requesting party.
28. Condition of Premises at Termination.
(a) Unless the Demised Premises have been
purchased by Tenant pursuant to Articles 3, 5, 15, 16, 18 or 22, at the
expiration or earlier termination of the Lease Term Tenant shall surrender the
Demised Premises to Landlord or its designee, together with all alterations,
additions and improvements then existing thereon, in good order and condition
except for ordinary wear and tear consistent with the provisions of Articles 10
and 20 hereof and free and clear of all liens or encumbrances of any type
whatsoever, except for Permitted Liens of the type specified in clauses (a),
(b), (e) (but only if such liens have been bonded) and (f) of the definition of
"Permitted Liens" in Article 20 hereof, and such other liens or encumbrances
for which Tenant has provided assurance of full payment or complete discharge
and adequate assurance that such lien will not impair the fair market value of
the Demised Premises to Landlord or its designee to Landlord's and such
designee's
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<PAGE> 36
satisfaction. All furniture and trade fixtures installed in said buildings at
the expense of Tenant or other occupant shall remain the property of Tenant or
such other occupant and shall be removed by Tenant at its expense prior to the
expiration or earlier termination of the Lease; provided, however, Tenant
shall, at any time and from time to time during the Lease Term, have the option
to relinquish its property rights with respect to such trade fixtures, which
option shall be exercised by notice of such relinquishment to Landlord, and
from and after the exercise of said option the property specified in said
notice shall be the property of Landlord.
(b) With respect to environmental matters, not
more than one hundred eighty (180) days nor less than sixty (60) days prior to
the expiration or upon the earlier termination of the Lease Term, Tenant shall,
at its sole cost and expense, provide to Landlord an environmental site
assessment report, concerning a site assessment which shall be performed by a
reputable environmental consultant selected by Tenant and satisfactory to
Landlord, in its reasonable discretion, stating that it appears that Hazardous
Materials (as defined in Article 39) have not been generated, produced,
manufactured, processed, distributed, maintained, used, handled, treated,
managed, stored, contained, recycled, transported, released, emitted,
discharged, deposited or disposed of on, in, to or from the Demised Premises
other than in compliance with applicable Environmental Laws. If such is not
the case, the report shall set forth recommendations for such additional
investigation or remedial or other response action relating to the Demised
Premises as may be deemed necessary or advisable by the consultant. If any
reporting requirements must be complied with under applicable Environmental
Laws with respect to the Demised Premises, then it shall be the sole
responsibility and cost of Tenant to comply with these requirements. In the
event the report recommends any investigation or remedial or other response
action, it shall be Tenant's obligation, at Tenant's sole cost and expense, to
timely develop and implement in compliance with all relevant Environmental Laws
such remedial action plan. If it is required by applicable Environmental Laws,
such remedial action plan shall be submitted by Tenant to the appropriate
governmental agency for review and approval. Any investigation,
recommendations for remedial or other response, or remedial action plan shall
include, but shall not be limited to, plans for full response, remediation,
cleanup, removal, containment, restoration or other corrective action, and the
protection, or mitigative action associated, as appropriate, with the
protection of natural resources including wildlife, aquatic species, and
vegetation associated with the Demised Premises, as required by applicable
Environmental Laws.
29. Notices.
Notices required under this Lease shall be in
writing and shall be deemed to be properly served on receipt thereof if sent by
certified or registered mail to Landlord at the following address (include fax
and telephone number):
Shawmut Bank Connecticut,
National Association
777 Main Street
Hartford, Connecticut 06115
Telephone No. (203) 722-9079
Telecopy No. (203) 240-7920
Attn: Corporate Trust Administration
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with a copy to:
William G. Rock, Esq.
Shipman & Goodwin
One American Row
Hartford, Connecticut 06103
Telephone No. (203) 251-5000
Telecopy No. (203) 251-5199
or to Tenant at the following address (include fax and telephone number):
Kmart Corporation
3100 West Big Beaver Road
Troy, Michigan 48084
Attn: Vice President - Real Estate
Telephone No. (810) 637-8950
Telecopy No. (810) 643-2689
with a copy to:
Zan M. Nicolli, Esq.
Dickinson, Wright, Moon, Van Dusen & Freeman
525 North Woodward Avenue
Bloomfield Hills, Michigan 48304
Telephone No. (810) 433-7200
Telecopy No. (810) 433-7274
or to any subsequent address which Tenant or Landlord shall designate for such
purpose in writing in accordance with this Article. Notices sent by overnight
delivery or by hand delivery shall be deemed received upon delivery. Notices
sent by facsimile machine shall be deemed received one (1) day after facsimile
transmission provided that telephonic confirmation is received of the
transmission.
30. Notice of Environmental Matters.
Tenant shall provide Landlord with prompt written
notice of any pending Environmental Claim in connection with the Demised
Premises. Tenant also shall provide Landlord with prompt written notice of any
threatened Environmental Claim in connection with the Demised Premises made by
a reputable environmental group. All such notices shall describe in detail the
nature of the Environmental Claim and Tenant's response thereto. In addition,
Tenant shall promptly provide to Landlord copies of all written communications
with any governmental authority relating to any Environmental Law in connection
with the Demised Premises. Tenant shall promptly provide such reasonably
detailed reports of any such Environmental Claims as may be reasonably
requested by Landlord.
Tenant shall provide Landlord with prompt written
notification of any known (i) violation or non-compliance with any applicable
Environmental Law with respect to the Demised Premises, and (ii) release of
Hazardous Materials on, in, at or from the Demised Premises which is required
to be reported to any governmental agency
-33-
<PAGE> 38
pursuant to applicable Environmental Laws. Tenant shall also promptly provide
Landlord with copies of all correspondence, reports and other documentation
relating to such violation or release and Tenant's remedial or response action.
31. Entry by Landlord.
From time to time during the term of this Lease,
Landlord shall have the right during normal business hours after twenty-four
(24) hours' notice to Tenant or without notice in the event of emergency or if
an Event of Default shall have occurred and is continuing to enter the Demised
Premises for the purpose of: (i) inspecting the condition of the Demised
Premises, (ii) showing the Demised Premises to prospective purchasers or
mortgagees, (iii) inspecting for compliance with such matters as Tenant is
obligated for (including compliance with Environmental Laws), (iv) advertising
the Demised Premises for rent or sale during the final year of the Base Term or
any renewal term or in accordance with Article 22. Landlord acknowledges and
agrees that Landlord will not interfere with the conduct of Tenant's business
to the extent reasonably practicable in re-entering the Demised Premises for
the purposes set forth herein.
32. Captions and Definitions.
Captions of Articles of this Lease are solely for
convenience of reference and shall not in any way limit or amplify the terms
and provisions thereof. The necessary grammatical changes which shall be
required to make the provision of this Lease apply (a) in the plural sense if
there shall be more than one Landlord, and (b) to any landlord which shall be
either a corporation, an association, a partnership, or an individual, male or
female, shall in all instances be assumed as though in each case fully
expressed.
33. Successors and Assigns.
The conditions, covenants and agreements contained
in this Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, executors, administrators, successors and
assigns. All covenants and agreements of this Lease shall run with the Land.
34. Severability.
If any one or more of the provisions contained
herein shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality, unenforceability shall not affect any
other provision of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had not been contained herein.
35. Independent Covenants.
The covenants of Landlord and Tenant herein are
independent and several covenants and the performance of any covenant is not
conditioned upon the performance or compliance with any other covenant of this
Lease.
-34-
<PAGE> 39
36. Choice of Law.
This Lease shall be construed and enforced in
accordance with the laws of the state where the Demised Premises are located
without regard to provisions governing conflict of laws. The language in all
parts of this Lease shall in all cases be construed as a whole according to its
fair meaning and not strictly for or against either Landlord or Tenant.
37. Waiver and Modifications.
The failure of either party to insist in any one or
more instances upon the strict performance of any one or more of the
agreements, terms, covenants, conditions or obligations of this Lease, or to
exercise any rights, remedy or election herein contained, shall not be
construed as a waiver or relinquishment for the future of the performance of
such agreements, terms, covenants, conditions or obligations of this Lease or
of the right to exercise such right, remedy or election, but the same shall
continue and remain in full force and effect with respect to any subsequent
breach, act or omission. This Lease may be changed or amended only by a
writing signed by the party against whom enforcement thereof is sought.
38. Memorandum of Lease.
The parties hereto have simultaneously with the
execution and delivery of this Lease executed and delivered a memorandum of
Lease in form and content mutually agreeable to Landlord and Tenant which
Tenant shall at its sole expense cause to be recorded.
39. Hazardous Materials.
For purposes of this Lease, Hazardous Materials are
defined as (i) "hazardous substances," as defined by CERCLA, as amended from
time to time and any regulations promulgated thereunder; (ii) "hazardous
wastes," as defined by RCRA, as amended from time to time and any regulations
promulgated thereunder; (iii) any pollutant or contaminant or hazardous,
restricted, dangerous or toxic chemicals, materials, wastes or substances
within the meaning of any Environmental Law; (iv) any chemical, material,
substance, or waste, the presence, use, generation, treatment, release,
emission, discharge, transport, storage, or disposal of which is now or
hereafter prohibited, limited or regulated by any Environmental Law; (v) any
substance, material, product, chemical, derivative, compound, mixture, mineral,
waste, gas, medical waste, contaminant or pollutant which would require
investigation, response or remediation as a result of any public or private
action brought pursuant to any Environmental Law; and (vi) any radioactive
material, asbestos in any form or condition, petroleum or petroleum products,
flammable explosives, urea formaldehyde foam insulation, polychlorinated
biphenyls, and radon gas.
Tenant agrees that, except for oil, batteries and
other household products typically and customarily sold in the Kmart stores (or
any of the stores of any subsidiaries of Kmart which are subsidiaries on the
date hereof) in the ordinary course of its business in compliance with
applicable Environmental Laws, it shall not cause or permit any Hazardous
Material to exist on or be brought upon, generated,
-35-
<PAGE> 40
produced, manufactured, processed, distributed, maintained, handled, treated,
managed, contained, recycled, transported, deposited, used, stored, released,
disposed of, emitted or discharged from, at, on or to the Demised Premises
during the term of this Lease. Subject to the foregoing agreement of Tenant,
oil, batteries and other household products typically and customarily sold in
Kmart stores (or any of the stores of any subsidiaries of Kmart which are
subsidiaries on the date hereof) in the ordinary course of its business shall
be maintained, generated, produced, manufactured, processed, distributed, used,
handled, treated, managed, stored, contained, recycled, transported, released,
emitted, discharged, deposited or disposed of on, to, from, or at the Demised
Premises in compliance with applicable Environmental Laws.
Tenant shall assume any and all costs and expenses
incurred in connection with, and shall promptly and diligently undertake, any
investigation of site conditions or any clean up, response, remedial, removal,
containment, corrective action or restoration work required pursuant to any
applicable Environmental Law or by any federal, state or local government or
political subdivision thereto because of Hazardous Material present in, on,
under or at the soil, surface water, ground water, sediment, air or any other
media associated with the Demised Premises. Without limiting the foregoing, if
the presence of any Hazardous Material at the Demised Premises results in
contamination of the Demised Premises, Tenant shall promptly take all actions
at its sole expense as are necessary to return the Demised Premises to the
condition existing prior to the introduction of any such Hazardous Material to
the Demised Premises, provided, however, that in the event the Demised Premises
are contaminated by a release from a source not upon the Demised Premises,
Tenant shall not be obligated promptly to undertake any remedial action, unless
otherwise required to do so pursuant to applicable Environmental Laws. Without
limiting Tenant's obligations hereunder, Tenant may seek environmental response
costs from any third party not a party to this Lease or the Purchase Agreement
(and not related to any party to this Lease or the Purchase Agreement), and
Landlord shall cooperate to a reasonable extent in any such effort.
40. Private Company Financial Status.
In the event that at any time during the term of
this Lease Kmart is no longer a publicly traded company, annual audited
financial statements prepared in accordance with generally accepted accounting
principles shall be submitted to Landlord within one hundred twenty (120) days
after the end of Kmart's fiscal year during the term of the Lease.
41. Tenant's Purchase Offer.
(a) At any time that a Tenant's Purchase Offer
shall have been made pursuant to Articles 3, 15, 16 or 18 of this Lease,
Landlord shall notify Tenant within seventy (70) days of Tenant's Purchase
Offer whether Landlord accepts or rejects such offer. Failure by Landlord to
notify Tenant of Landlord's election within such seventy (70) day period shall
be deemed acceptance of Tenant's Purchase Offer.
(b) In the event Landlord accepts Tenant's
Purchase Offer and subject to the satisfaction of the conditions set forth in
this Article 41, the Lease shall
-36-
<PAGE> 41
terminate on the next scheduled Rent Payment Date occurring not less than
one-hundred (100) days from the date of Tenant's Purchase Offer ("Purchase
Offer Termination Date"). On the Purchase Offer Termination Date, Tenant shall
pay to Landlord (or in the case of Additional Rent to Landlord or the person
entitled thereto) an amount equal to the sum of (A) the Termination Value of
the Demised Premises determined as of the Purchase Offer Termination Date, (B)
all Basic Rent due and unpaid to and including the Purchase Offer Termination
Date (other than any portion of Basic Rent payable in advance on the Purchase
Offer Termination Date), plus (C) all Additional Rent owing by Tenant to and
including the Purchase Offer Termination Date (other than any portion payable
in advance on the Purchase Offer Termination Date). In addition, any Basic
Rent paid in advance and not yet accrued as of the Purchase Offer Termination
Date shall be refunded to Tenant on such date.
On the Purchase Offer Termination Date, and subject
to the receipt by Landlord of the amounts specified in the preceding paragraph,
Landlord shall convey all of its right, title and interest in and to the
Demised Premises by limited warranty deed in an "as is" condition without
warranty, except that the Demised Premises shall be free and clear of Lessor
Liens.
Tenant shall pay, on an After-Tax Basis (as defined
in the Master Indemnification Agreement), all costs and expenses incurred in
connection with the sale of the Demised Premises to Tenant pursuant to Tenant's
Purchase Offer, including, without limitation, real estate transfer taxes. In
addition, in the event of a sale pursuant to Articles 3, 15, 16 and 18 hereof,
Tenant shall also pay an amount equal to the Make-Whole Premium and Break
Amount, if any, as defined in the Note Indenture.
(c) In the event Landlord rejects Tenant's
Purchase Offer, on the Purchase Offer Termination Date Tenant shall pay to
Landlord (or in the case of Additional Rent to Landlord or the person entitled
thereto) an amount equal to the sum of clauses (B) and (C) of the second
sentence of paragraph (b) above, plus in the case of Articles 15, 16 and 18 an
amount equal to the Make-Whole Premium and Break Amount, if any, and the Lease
shall thereupon terminate. Any Rent and other charges paid in advance and not
yet accrued as of the Purchase Offer Termination Date shall be refunded to
Tenant on such date.
42. Property Substitution.
(a) At any time Tenant shall be entitled or
required to acquire the Demised Premises pursuant to Articles 3, 5, 15, 16 and
18 hereunder, Tenant shall be entitled in lieu thereof to substitute a property
for the Demised Premises provided that (i) the fair market value of the
substitute property as determined by appraisal procedures set forth in Article
46 hereof shall be not less than the greater of (1) the fair market value of
the Demised Premises immediately prior to the event which gave rise to the
substitution and (2) the applicable Termination Value; (ii) the useful life of
the substitute property shall be not less than the useful life of the Demised
Premises immediately prior to the event which gave rise to the substitution;
(iii) the representations and warranties of Kmart made with respect to the
Demised Premises shall be remade and true with respect to the substitute
property on the effective date of substitute; and (iv) an environmental due
diligence report, survey and title report, each in form and substance
satisfactory to Landlord and Note
-37-
<PAGE> 42
Trustee, concerning the land and property to be substituted, shall have been
provided in sufficient time for appropriate review by Landlord and Note Trustee
prior to the effective date of such substitution. In the event a Phase I
environmental due diligence report recommends further environmental analysis in
connection with the substitute property, Tenant shall determine in its sole
discretion whether to undertake such further analysis or to substitute another
property for the Demised Premises, pursuant to the terms of this paragraph.
(b) On the substitution date, the substitute
property will be subjected to the terms and conditions of this Lease and
Landlord shall convey all of its right, title and interest in and to the
Demised Premises to Tenant by limited warranty deed in an "as is" condition
except that it shall be free and clear of Lessor Liens, upon satisfaction of
the conditions set forth in sections 10(C), (D), (E), (J), (M), and (O) of the
Purchase Agreement and upon delivery by Tenant to Landlord of all of the
following:
(i) those documents with respect to the
substitute property which are set forth in Sections
9(A)(1), (2), (3), (4), (5), (6), (10), (13), (14) and
(15) of the Purchase Agreement.
(ii) an amendment to this Lease and any
memorandum hereof duly executed and acknowledged in form
and substance reasonably satisfactory to Landlord and
Tenant to replace the description of the Land with the
description of all land included in the substitute
property and make such other changes herein as may be
reasonably necessary or appropriate under the
circumstances; provided, however, that in no event shall
the Basic Rent be reduced, deferred or abated;
(iii) a copy of a final as-built survey of the
substitute property, dated a recent date, reasonably
satisfactory in form and substance to Landlord and meeting
the survey requirements for the Demised Premises set forth
in the Purchase Agreement;
(iv) counterparts of an ALTA owner's and loan
policies of title insurance (or such other form of loan
policy as may be prescribed by statute in a particular
state) covering the substitute property (or the valid,
binding, unconditional commitment therefor), dated the
substitution date, in form and substance reasonably
satisfactory to Landlord and Note Trustee, issued to them
by a title insurance company reasonably satisfactory to
Landlord;
(v) certificates of insurance, if any, required
with respect to the substitute property pursuant to
Articles 8 and 15 hereof;
(vi) a copy of the appraisal required hereunder;
and
(vii) such other certificates, documents, opinions
of counsel, surveys, certified copies of duly adopted
resolutions of the respective boards of directors of
Landlord and Tenant authorizing the substitution of the
substitute property and the documents executed in
connection therewith, and any other instruments as may be
reasonably required by either of them.
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<PAGE> 43
43. Landlord's Right to Cure Tenant's Default.
If Tenant shall fail to make any payment or perform
any act required to be made or performed under this Lease, Landlord, after
notice to and demand upon Tenant, and without waiving or releasing any
obligation or default, may (but shall be under no obligation to) at any time
thereafter make such payment or perform such act for the account and at the
expense of Tenant, and may enter upon the Demised Premises for such purpose and
take all such action thereon as, in Landlord's opinion, may be necessary or
appropriate therefor. No such entry shall be deemed an eviction of Tenant.
All sums so paid by Landlord and all costs and expenses (including, without
limitation, attorneys' fees and expenses) so incurred, together with a late
charge thereon (to the extent permitted by law) at the Default Rate (or at the
maximum rate permitted by law, whichever is the lesser) from the date on which
such sums or expenses are paid or incurred by Landlord, shall be paid by Tenant
to Landlord on demand.
44. No Merger of Title.
There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person,
firm, corporation or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate and (b) the fee estate in the
Demised Premises or any interest therein.
45. Ownership of the Leased Property.
Tenant acknowledges that the Demised Premises are
the property of Landlord and that Tenant has only the right to the possession
and use of the Demised Premises upon the terms and conditions of this Lease.
46. Procedure for Appraisals.
In each instance under this Lease where an
appraisal shall be required (except with respect to an appraisal required by
Article 22), such appraisal shall be conducted as follows:
(a) The party desiring such appraisal shall give
notice to that effect to the other party, specifying therein the name and
address of the person designated to act as appraiser on its behalf. Within
fifteen (15) days after the service of such notice, the other party shall give
notice to the first party specifying the name and address of the person
designated to act as appraiser on its behalf. If such party fails to notify
the other party of the appointment of its appraiser within or by the time above
specified, then the other party, on behalf of both, may apply to a court in the
county where the Demised Premises is located for the appointment of such
appraiser, and such party shall not raise any question as to the court's full
power and jurisdiction to entertain the application and make the appointment.
(b) The appraisers so chosen shall meet within
ten (10) days after the second appraiser is appointed and if within thirty (30)
days of such first meeting the two appraisers agree on the value which they
have been appointed to determine, such agreed upon value shall be the appraised
value for the purposes for which the
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<PAGE> 44
appraisal was required. If within thirty (30) days after such first meeting
the two appraisers shall be unable to agree upon such valuation within fifteen
(15) days thereafter they shall appoint a third appraiser who shall be
competent and impartial. Within thirty (30) days after the appointment of such
third appraiser, the third appraiser shall deliver its appraisal. With respect
to the three appraisals, the appraisal most different from the average of the
other two shall be discarded and such average shall be binding on Landlord and
Tenant; provided that if the highest appraisal and the lowest appraisal are
equidistant from the third appraisal, the third appraisal shall be binding on
Landlord and Tenant.
(c) In the event the two appraisers are unable
to agree upon the appointment of a third appraiser within fifteen (15) days
after their being unable to agree upon a valuation, such third appraiser shall
be selected by the parties themselves if they can agree thereon within a
further period of fifteen (15) days. If the parties do not so agree, then
either party may apply to the court as provided in paragraph (a) above.
(d) Any appraiser appointed pursuant to this
Article shall be an appraiser who is a member of the American Institute of Real
Estate Appraisers (or a successor organization), and shall have been doing
business as such for a period of at least ten (10) years before the date of his
appointment. All appraisers chosen or appointed pursuant to this Article shall
be sworn fairly and impartially to perform their duties as such appraiser. In
the event of the failure, refusal or inability of any appraiser to act, his
successor shall be appointed within ten (10) days by the party who originally
appointed him or in the event such party shall fail so to appoint such
successor, or in the case of the third appraiser, his successor shall be
appointed as provided in paragraph (a) above.
(e) Unless otherwise expressly provided herein,
each party shall pay the fees and expenses of its respective appraiser and both
shall share the fees and expenses of the third appraiser, if any. Each party
shall be responsible for the fees and expenses of its own attorneys and other
representatives. Photocopies of the reports of all appraisers shall be
provided to all the parties. In rendering their decision, the appraisers shall
have no power to modify or reform any of the provisions of this Lease.
(f) In the event of an appraisal under Article
22, Landlord shall appoint an appraiser who meets the requirements of
subparagraph (d) above.
47. Survival of Tenant's Obligations.
No termination of this Lease shall relieve Tenant
of any of its liabilities and obligations hereunder arising or occurring prior
to such termination, or any of its obligations under Article 7 which survive as
set forth therein.
48. Counterparts.
This Lease may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
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<PAGE> 45
49. Liabilities of Landlord.
Landlord is entering into this Lease solely in its
capacity as owner trustee under the Trust Agreement and not in its individual
capacity, and in no event whatsoever shall Shawmut Bank Connecticut, National
Association (or any entity acting as successor trustee, co-trustee or separate
trustee under the Trust Agreement) be liable on, or for any loss in respect of,
any of Landlord's statements, representations, warranties, agreements or
obligations (except those explicitly entered into in its individual capacity)
hereunder or under any of the other Operative Documents, or any other document
executed by Landlord in connection herewith for any reason whatsoever, all as
to which the parties agree to look solely to the Trust Estate (as defined in
the Purchase Agreement).
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
WITNESSES: "LANDLORD"
SHAWMUT BANK CONNECTICUT,
NATIONAL ASSOCIATION, a national
banking association,
not in its individual capacity,
except as expressly stated herein,
but solely as Owner Trustee
_____________________________ By: _____________________________
Robert L. Reynolds
Its: Assistant Vice President
"TENANT"
KMART CORPORATION, a Michigan
corporation
_____________________________ By: ___________________________
M. L. Skiles
Its: Senior Vice President
_____________________________
-41-
<PAGE> 46
ACKNOWLEDGMENTS
STATE OF MICHIGAN)
) SS
COUNTY OF WAYNE )
The foregoing instrument was acknowledged before me this
____ day of December, 1993 by Robert L. Reynolds, the Assistant Vice President
of Shawmut Bank Connecticut, National Association, a national banking
association, not in its individual capacity, except as expressly stated herein,
but solely as Owner Trustee under trust agreement of even date herewith, on
behalf of said association.
_______________________________________
Notary Public, Wayne County
State of Michigan
My Commission Expires:
STATE OF MICHIGAN)
) SS
COUNTY OF WAYNE )
The foregoing instrument was acknowledged before me this
____ day of December, 1993 by M. L. Skiles, the Senior Vice President of KMART
CORPORATION, a Michigan corporation, on behalf of the Corporation.
_______________________________________
Notary Public, Wayne County
State of Michigan
My Commission Expires:
-42-
<PAGE> 47
EXHIBIT A
Legal Description
[Exhibit A Intentionally Omitted]
<PAGE> 48
EXHIBIT B
Depiction of Site
[Exhibit B Intentionally Omitted]
<PAGE> 49
EXHIBIT C
Rents and Rent Payment Dates
[Exhibit C Intentionally Omitted]
<PAGE> 50
EXHIBIT C-1
Landlord's Debt
[Exhibit C-1 Intentionally Omitted]
<PAGE> 51
EXHIBIT C-2
Rental Adjustment Certificate
[Exhibit C-2 Intentionally Omitted]
<PAGE> 52
EXHIBIT D
Termination Value
[Exhibit D Intentionally Omitted]
<PAGE> 53
EXHIBIT E
Form of Estoppel Letter
[Exhibit E Intentionally Omitted]
<PAGE> 54
EXHIBIT 99.1
SCHEDULE OF MATERIALLY
DIFFERENT PROVISIONS
<TABLE>
<CAPTION>
OWNER TRUST GEOGRAPHIC
NUMBER LOCATION OF PROPERTY MATERIALLY DIFFERENT PROVISIONS
- ----------- --------------------- ---------------------------------------------------------
<S> <C> <C>
1993-1 Crescent City, CA None.
1993-2 Folsom, CA None.
1993-3 Watertown, NY None.
1993-4 Galesburg, IL None.
1993-5 Kenai, AK None.
1993-6 Fairbanks, AK None.
1993-7 Marina, CA None.
1993-8 Carmel Mt., CA Imposes additional rental and performance obligations
under the Ground Lease relating to such Property.
1993-9 Manteca, CA None.
1993-10 Fairlea, WV None.
1993-11 Lorain, OH None.
1993-12 Yuma, AZ None.
1993-13 Ft. Myers, FL None.
1993-14 San Antonio, TX None.
1993-15 Tulsa, OK None.
1993-16 Austin, TX None.
1993-17 Forest Park, GA None.
1993-18 Santee, CA None.
1993-19 Moorpark, CA Imposes additional rental and performance obligations
under the Ground Lease relating to such Property.
1993-20 Exmore, VA None.
1993-21 Tustin, CA None.
1993-22 Perris, CA None.
1993-23 Warwick, RI None.
1993-24 Sunrise, FL None.
</TABLE>
<PAGE> 1
EXHIBIT 99.2
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made and entered into as of this ____ day
of March, 1994, between [__________________________], a national banking
association, not in its individual capacity, but solely as Owner Trustee under
Trust Agreement with RETRAM, Inc. dated as of December 15, 1993, having its
principal office at [_______________________________________________________]
("Landlord"), and KMART CORPORATION, a Michigan corporation having its
principal office at 3100 W. Big Beaver Road, Troy, Michigan 48084 ("Tenant").
RECITALS:
A. Landlord and Tenant have entered into a Lease of certain premises
and buildings and improvements thereon located in the City of ________________,
County of ________________, State of ______________, dated as of December 15,
1993 ("Lease");
B. As of the date hereof, Landlord has refinanced its Landlord's Debt
as defined in the Lease; and
C. Landlord and Tenant desire to amend the Lease to delete the rental
adjustment provision related to the interim financing and to substitute Exhibit
C-1-Landlord's Debt, Exhibit C - Rents and Exhibit D - Termination Values,
each of which has been adjusted to reflect the refinancing.
NOW, THEREFORE, in consideration of the rents, covenants and conditions set
forth in the Lease, Landlord and Tenant do hereby agree as follows:
1. Subsection (f) of Article 3 - Basic and Additional Rent is hereby
deleted in its entirety.
2. Exhibit C - Rents and Rent Payment Dates is deleted in its entirety
and is replaced by Exhibit C attached hereto.
3. Exhibit C-1 - Landlord's Debt is deleted in its entirety and is
replaced by Exhibit C-1 attached hereto.
4. Exhibit C-2 was inadvertently omitted from the Lease and is
therefore attached hereto.
5. Exhibit D - Termination Values is deleted in its entirety and is
replaced by Exhibit D attached hereto.
6. Except as amended by the terms and conditions hereof, the Lease
shall remain unmodified and in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Lease as of the day and year first above written.
WITNESSES: "LANDLORD"
____________________________ [Owner Trustee], a national banking
association, not in its individual capacity, but solely as Owner Trustee
aforesaid
____________________________ By:_________________________________________
Its:________________________________________
"TENANT"
KMART CORPORATION, a Michigan corporation
By:______________________________________
M.L. Skiles
Its: Senior Vice President
Agreed and consented to by:
"NOTE TRUSTEE"
BANK OF NEW YORK,
not in its individual capacity
but as Note Trustee
By: __________________________
Name:
Title:
"BOND TRUSTEE"
BANK OF NEW YORK,
not in its individual capacity
but as Bond Trustee
By: __________________________
Name:
Title:
ACKNOWLEDGEMENTS
STATE OF ________ )
) SS.
COUNTY OF _______ )
The foregoing instrument was acknowledged before me this ____ day of March,
1994, by _______________________, the ______________________ of
______________________, a national banking association, not in its individual
capacity, but solely as Owner Trustee under Trust Agreement aforesaid of even
date herewith, on behalf of said association.
______________________________________
Notary Public
State of Michigan
My Commission Expires:
-2-
<PAGE> 3
STATE OF MICHIGAN )
) SS.
COUNTY OF _______ )
The foregoing instrument was acknowledged before me this ____ day of March,
1994, by M.L. Skiles, the Senior Vice President of KMART CORPORATION, a
Michigan corporation, on behalf of the Corporation.
______________________________________
Notary Public
State of Michigan
My Commission Expires:
-3-
<PAGE> 4
EXHIBIT C
Rent And Rent Payment Dates
[Intentionally Omitted]
<PAGE> 5
EXHIBIT C-1
Landlord's Debt
[Intentionally Omitted]
<PAGE> 6
EXHIBIT C-2
Rental Adjustment Certificate
_______________, ____
Bank of New York
101 Barclay, 21 W
New York, New York 10286
Re: Lease between Kmart Corporation and [Shawmut Bank Connecticut,
National Association] [Society National Bank] [Co-Trustee], dated as
of December 15, 1993 with respect to [Kmart] [Builders Square] Store
No. ____, ___________, ___________, Owner Trust No. 1993-__ (the
"Lease")
Gentlemen:
Capitalized terms used herein have the meanings given to such terms in the
Lease. Pursuant to Section 3(d) of the Lease, Landlord and Tenant hereby
certify to The Bank of New York, as Note Trustee, that a Rental Adjustment
under Section 4(B) of the Purchase Agreement has occurred effective as of
_____________, ____. Attached hereto is a copy of the [__________] Amendment
to Lease entered into to reflect such Rental Adjustment, including revised
Exhibits C, C-1 and D to the Lease reflecting the adjusted schedule of Basic
Rent installments, schedule of Landlord's Debt and schedule of Termination
Values.
Very truly yours,
"TENANT"
KMART CORPORATION
By:___________________________
Its:__________________________
<PAGE> 7
Bank of New York
__________________,______
Page 2
"LANDLORD"
[SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION][SOCIETY NATIONAL
BANK], a national banking
association, not in its individual
capacity, but solely as Owner
Trustee
By:________________________________
Its:____________________________
<PAGE> 8
EXHIBIT D
Termination Values
[Intentionally Omitted]
<PAGE> 1
EXHIBIT 99.5
MASTER INDEMNIFICATION AGREEMENT
Dated as of December 15, 1993
between
KMART CORPORATION,
as Seller
and
RETRAM, INC.,
as Owner Participant,
FGHK, LTD., A WYOMING LIMITED LIABILITY COMPANY,
as Remainder Purchaser,
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
individually and as Remainder Trustee
and as Owner Trustee
SOCIETY NATIONAL BANK,
individually and as Remainder Trustee
and as Owner Trustee,
BANKERS TRUST COMPANY,
as Initial Loan Participant
and
THE BANK OF NEW YORK,
individually and as Note Trustee
<PAGE> 2
MASTER INDEMNIFICATION AGREEMENT dated as of December 15, 1993 between
KMART CORPORATION, a Michigan corporation (the "Seller"), Retram, Inc., a
Delaware corporation (the "Owner Participant"), FGHK, LTD., A Wyoming Limited
Liability Company, as Remainder Purchaser, Shawmut Bank Connecticut,
National Association, a national banking association, individually and as Owner
Trustee under the Trust Agreements listed on Schedule A hereto and as remainder
Trustee, SOCIETY NATIONAL BANK, individually and as Remainder Trustee and as
Owner Trustee, Bankers Trust Company, as Initial Loan Participant and THE BANK
OF NEW YORK, individually and as Note Trustee under the Note Indentures listed
on Schedule B hereto.
WITNESSETH:
WHEREAS the Owner Participant is the grantor of trusts (the "Trusts")
under Trust Agreements, dated as of December 15, 1993, between the Owner
Participant and each of the Owner Trustees (each a "Trust Agreement" and
collectively "Trust Agreements"), providing, among other things, for the
authorization and direction of such Owner Trustee, solely on behalf of the
related Trust, to agree to purchase certain improvements and personalty
described in Schedule A hereto and an Estate-for-Years or leasehold interest in
the Lands described in Schedule B hereto and any Lands, improvements and
personalty substituted therefor in accordance with the terms of the Operative
Documents (together, the "Properties" and individually, each a "Property");
WHEREAS the Seller, the Owner Participant, the Remainder Purchaser and
each of the Owner Trustees have entered into the Agreement for Sale of Real
Estate, dated as of December 15, 1993 (the "Purchase Agreement") providing,
subject to the terms and conditions set forth therein, for the Owner Trustees
to acquire all of the Seller's right, title and interest in the Properties for
a price equal to the Owner Participant Purchase Price and for the Remainder
Purchaser to acquire all of Seller's right, title and interest in the Remainder
Interests for a price equal to the Remainder Purchaser Purchase Price;
WHEREAS the Seller has agreed to lease each of the Properties from the
applicable Owner Trustee and such Owner Trustee has agreed to lease the same to
the Seller for the term commencing on the Closing Date pursuant to the Leases;
and
WHEREAS the parties hereto desire to clarify their respective rights and
obligations with respect to certain indemnities provided for herein and related
consequences of the transactions contemplated by the Operative Documents.
NOW, THEREFORE, as inducement to the parties hereto to enter into the
transactions contemplated by the Operative Documents and in consideration of
the mutual covenants contained herein and
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in the Operative Documents and other good and valuable consideration, receipt
of which is hereby acknowledged, the parties agree that capitalized terms used
in this Master Indemnification Agreement and not otherwise defined herein shall
have the meanings assigned to them in the Purchase Agreement or the applicable
Lease and further agree as follows:
SECTION 1. General Indemnity. (1) The Seller agrees, whether or not any
of the transactions contemplated by the Operative Documents shall be
consummated, to assume liability for, and to indemnify, protect, defend, save
and keep harmless the Owner Participant, each of the Owner Trustees (in their
individual capacity and as trustees under the Trust Agreements) and any
successors thereto or co-trustees thereunder, each of the Remainder Trustees
(in their individual capacity and as trustees under the Remainder Purchaser
Trust Agreements) and any successors thereto or co-trustees thereunder, the
Remainder Purchaser, the Trusts, the Remainder Trusts, the Note Trustee (in
its individual capacity and as trustee under each Note Indenture for the
benefit of the holders of the Notes), the Note Indenture Estates, the
Initial Loan Participant and each of its successors and assigns and each
subsequent holder of a Note under the Note Indentures, and each of their
respective affiliates, successors, permitted assigns, permitted transferees,
servants, employees, agents, shareholders, directors and officers (each an
"Indemnitee"), on an After-Tax Basis, from and against any and all Claims that
may be imposed on, incurred by or asserted against any Indemnitee, whether or
not such Indemnitee shall also be indemnified as to any such Claim by any other
Person (subject, however, to the provisions of Section 9) and whether or not
such Claim arises or accrues prior to the date of this Master Indemnification
Agreement, in any way relating to or arising out of (a) the ownership,
operation, possession, use, improvement, leasing, subleasing, financing,
refinancing pursuant to the Multi-Party Agreement or in respect of the Initial
Notes, disposition, reconveyance or maintenance of, or the granting of
easements, licenses, or any similar rights with respect to, or any dedication,
condemnation, or taking of or with respect to, all or any part of, or interest
in, any Property, the Remainder Interests or any Lease (including any property
substituted for any such property pursuant to the Purchase Agreement or any
lease, or any lease relating to such substituted property), (b) the
construction, design, purchase, acceptance, rejection, modification,
substitution or condition of any Property or any Remainder Interest, including
without limitation claims or penalties arising from any violation of law or
liability in tort (strict or otherwise), (c) a Release, a violation of or
non-compliance with any Environmental Law, any Hazardous Material, any
Environmental Claim, or any other loss of or damage or injury to any property,
Person or the environment (including without limitation air, water vapor,
surface water, ground water, drinking water, land (including surface and
subsurface), plant, aquatic and animal life) relating to or arising out of any
Property, any Remainder Interest, any Lease or the
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<PAGE> 4
Seller (including, without limitation, all costs and expenses associated with
remediation, response, removal, containment, restoration, corrective action,
financial assurance, environmental liens, natural resource damages and the
protection of wildlife, aquatic species, vegetation, flora and fauna, and any
mitigative action required under applicable Environmental Laws), (d) the Kmart
Transaction Documents, or any transaction contemplated thereby, (e) any breach
by the Seller of any of its representations or warranties under the Kmart
Transaction Documents or failure by the Seller or any Lessee to perform or
observe any covenant or agreement to be performed by it under any of the Kmart
Transaction Documents, (f) the transactions contemplated hereby or by any other
Operative Document, in respect of the application of Parts 4 and 5 of Subtitle
B of Title I of ERISA, including without limitation, the issuance, sale,
resale, holding, REFINANCING or transfer of the Notes or the Bonds or (g)
the Owner Participant's Financing including without limitation, the Notes, the
Bonds and any payments and expenses thereunder but excluding any payment of any
principal or interest on the debt evidenced thereby; provided, however, that
the Seller shall not be required to indemnify an Indemnitee under this Section
1 for any of the following: (1) with respect to an Indemnitee, any Claim
attributable to the willful misconduct or gross negligence of such Indemnitee
or its Indemnitee Group, (2) any Transaction Expense expressly provided under
the Operative Documents to be paid or borne by a party other than the Seller,
(3) with respect to an Indemnitee, any Claim attributable to a transfer by such
Indemnitee of any Property or any Remainder Interest therein, other than (x)
any transfer of a Property while a Lease Event of Default shall have occurred
and be continuing, or (y) any Claim attributable to a transfer of any Property
under Article 3, 5, 14, 15, 16, 18, 22, 41 or 42 of the Lease for such Property
or in respect of a transfer of a Property under the reconveyance agreement,
(4) any Claim in respect of Taxes, other than any payment necessary to make
payments under this Section 1 on an After-Tax Basis, (5) any Claim (x) to the
extent attributable to acts, events or circumstances which occur after the
later of (i) the expiration or earlier termination of the applicable Lease and
(ii) the Seller's actual return of possession of the applicable Property in
accordance with the applicable Lease and (y) that is not attributable to and
does not arise from, any act, event or circumstance occurring on or before the
later to occur of (i) and (ii) and (6) (x) with respect to the Owner
Participant, any Claim attributable to a breach by the Owner Participant or the
Owner Trustee of any of its representations, warranties and covenants set forth
in the respective Operative Documents to which it is a party or from a
violation of Laws, unless such breach or violation is attributable to any act,
omission, breach, violation or misrepresentation of a Person other than the
Owner Participant or its Indemnitee Group or the Owner Trustee in its trust
capacity and (y) with respect to any Indemnitee other than the Owner
Participant, any Claim attributable to a breach by such Indemnitee of any of
its representations,
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<PAGE> 5
warranties and covenants set forth in the Operative Documents or from a
violation of Laws, unless such breach or violation is attributable to any act,
omission, breach, violation or misrepresentation of a Person other than such
Indemnitee or its Indemnitee Group. For purposes of clause (5) of this Section
1(1), it is further agreed by the Seller that any Release, any violation of or
non-compliance with any Environmental Law, any Hazardous Material, any
Environmental Claim, or any other loss of or damage or injury to any property,
Person or the environment, relating to or arising out of any Property, any
Remainder Interest, any Lease or the Seller, that exists as of (or at any time
prior to) the later of the dates specified in (i) and (ii) of clause (5) above,
shall be included in the entirety within the scope of the Seller's obligations
hereunder (even though the same may increase to remedial levels or require
remedial or any other response action only subsequent to such date).
For purposes of this Master Indemnification Agreement an Indemnitee Group
shall include the affiliates, shareholders successors, permitted assigns,
permitted transferees, servants, employees, agents, directors and officers of
an Indemnitee.
(2) (a) If the Seller shall obtain knowledge of any Claim indemnified
against under this Section 1, the Seller shall give prompt notice thereof to
the appropriate Indemnitee or Indemnitees, and if any Indemnitee shall obtain
any such knowledge, such Indemnitee shall give prompt notice thereof to the
Seller, provided that failure to so notify the Seller shall not release the
Seller from any of its obligations to indemnify such Indemnitee hereunder
unless, but, in any case, solely to the extent that, such failure precludes
Seller from contesting such Claim hereunder or such failure materially
increases the amount of such Claim but only to the extent of such increase.
With respect to any amount that the Seller is requested by an Indemnitee to pay
by reason of this Section 1, such Indemnitee shall (subject to a satisfactory
confidentiality agreement), if so requested by the Seller and prior to any
payment and at Seller's expense, submit such additional information to the
Seller as the Seller may reasonably request and which is necessary to
substantiate properly the requested payment.
(b) In case any action, suit or proceeding shall be brought against
any Indemnitee, such Indemnitee shall notify the Seller of the commencement
thereof, and the Seller shall be entitled, at its expense, acting through
counsel reasonably acceptable to such Indemnitee, to participate in, and, to
the extent that the Seller desires to (but only if it has provided to such
Indemnitee its written acknowledgement that the Seller is obligated to
indemnify such Indemnitee with respect to such Claim under this Section 1;
provided, however, that such acknowledgement shall not preclude the Seller from
raising a defense to liability under this Section 1 if a court of competent
jurisdiction has
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<PAGE> 6
rendered a decision that the cause of such Claim is not one for which the
Seller is responsible to pay an indemnity to such Indemnitee under this Master
Indemnification Agreement), assume and control the defense thereof; provided,
further, however, that the Seller shall not be entitled to assume and control
the defense of any such action, suit or proceeding if and to the extent that,
(A) in the reasonable opinion of such Indemnitee, (x) such action, suit or
proceeding involves the potential imposition of criminal liability on such
Indemnitee, (y) such action, suit or proceeding involves the potential
imposition of material civil liability in excess of $5,000,000 (whether or not
indemnified hereunder) on such Indemnitee or (z) the control of such action,
suit or proceeding would involve the Seller in a bona fide conflict of
interest, (B) a Lease Event of Default has occurred and is continuing or (C)
such action, suit or proceeding involves matters which extend beyond or are
unrelated to the transactions contemplated by the Operative Documents and if
determined adversely could be detrimental to the interests of such Indemnitee
notwithstanding indemnification by the Seller. In the case of (A)(x), (A)(z)
or (B) of the preceding sentence, the Indemnitee will be entitled to assume and
take control of the defense thereof at Seller's expense including the payment
of reasonable attorneys' fees and expenses and in the case of (A)(y) or (C) of
the preceding sentence Indemnitee and Seller shall assume and take joint
control of the defense thereof at Seller's expense including the payment of
reasonable attorneys' fees and expenses and acting through respective counsel
reasonably acceptable to each such Indemnitee and to Seller and, in each such
case, Seller shall supply such Indemnitee with such information and documents
reasonably requested by the Indemnitee as are necessary or advisable for the
Indemnitee to conduct or to participate in the conduct of any such action, suit
or proceeding hereunder. The Indemnitee may participate, but not control, in a
reasonable manner at its own expense and with its own counsel in any proceeding
conducted by the Seller in accordance with the foregoing.
(c) Each Indemnitee shall at the Seller's expense supply the Seller
with such information and documents reasonably requested by the Seller as are
necessary or advisable for the Seller to participate in any action, suit or
proceeding to the extent permitted by this Section 1. Unless a Lease Event of
Default shall have occurred and be continuing, no Indemnitee shall enter into
any settlement or other compromise with respect to any Claim which is entitled
to be indemnified under this Section 1 without the prior written consent of the
Seller, which consent shall not be unreasonably withheld, unless such
Indemnitee waives its right to be indemnified under this Section 1 with respect
to such Claim.
(3) Upon payment in full of any Claim by the Seller pursuant to this
Section 1 to or on behalf of an Indemnitee, the Seller, without any further
action, shall be subrogated to any and all claims that such Indemnitee may have
relating thereto (other than claims in respect of insurance policies maintained
by such
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Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be reasonably necessary
to preserve any such claims and otherwise cooperate with the Seller and give
such further assurances as are reasonably necessary or advisable to enable the
Seller to pursue such claims.
(4) Any amount payable to an Indemnitee pursuant to this Section 1 shall
be paid to such Indemnitee within 15 days after receipt of a written demand
therefor from such Indemnitee, accompanied by a written statement describing
the basis for such indemnity and the computation of the amount so payable;
provided, however, in the case of any Claim that is contested in accordance
with Section 1(2)(b), any indemnity payment hereunder with respect to such
contested Claim (but only to the extent of any amounts contested hereunder) may
be deferred until a final resolution of such contest hereunder; provided,
further, however, if the Indemnitee is required to pay to any Person or
governmental body or entity any amounts in respect of such Claim prior to a
final resolution of such Claim hereunder, Seller shall advance to such
Indemnitee the amount of such Claim on an interest free basis (with no
additional net after-tax cost to such Indemnitee). In the event conflicting or
competing Claims are made on Seller by any Indemnitee, Seller shall be deemed
to satisfy such Claim by interpleading the payment of such Claim to a court of
applicable jurisdiction.
(5) Nothing in this Section 1 shall (a) be construed as a guaranty by
the Seller of any residual value in any Property or as a guaranty of the Notes
or the Bonds or (b) modify or limit the rights and obligations under the Leases
or any other Operative Documents with respect to any party hereto as to any
Claim covered hereby.
SECTION 2. General Tax Indemnity. (1) (a) Whether or not any of the
transactions contemplated hereby or by any of the Operative Documents shall be
consummated, the Seller shall pay and discharge and shall indemnify and hold
harmless, on an After-Tax Basis, the Owner Participant, each of the Owner
Trustees, (in their individual capacity and as trustees under the Trust
Agreements) and any successors thereto or co-trustees thereunder, each of the
Remainder Trustees (in their individual capacity and as trustees under the
Remainder Purchaser Trust Agreements) and any successors thereto or co-trustees
thereunder, the Remainder Purchaser, the Trusts, the Remainder Trusts, the
Note Trustee (in its individual capacity and as trustee under each Note
Indenture for the benefit of the holders of the Notes), the Note Indenture
Estates, the Initial Loan Participant and each of its successors and assigns
and each subsequent holder of a Note under the Note Indentures, and their
respective affiliates, successors, permitted assigns, permitted transferees,
servants, employee's,
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agents, shareholders, directors and officers (each, a "Tax Indemnitee") with
respect to all ad valorem real estate taxes or other taxes in the nature
thereof and all assessments, general or specific, levied or imposed against or
with respect to (i) the Properties or any part thereof or interest therein or
any addition, alteration, modification or improvement thereto, (ii) any
Remainder Interest, (iii) the Rent or (iv) the Owner Trustee's or Owner
Participant's interest in any Lease or in any Property, including, in each
case, any interest, penalties and additions to tax relating to such taxes or
assessments (collectively referred to as "Property Assessments") at any time
prior to, during or with respect to any period ending on or prior to, or
resulting from or attributable in any respect to acts or events occurring on or
prior to or relating to payments made by the Seller under the Operative
Documents at any time prior to or after, the later of (x) the expiration or
earlier termination of the relevant Lease and (y) the Seller's actual return of
possession of the Properties in accordance with the relevant Lease.
(b) Whether or not any of the transactions contemplated hereby or by
any of the Operative Documents shall be consummated, Seller shall also pay and
discharge, and shall indemnify and hold harmless, on an After-Tax Basis, each
Tax Indemnitee with respect to all taxes, levies, charges, licenses, fees,
imposts, duties, withholdings, liabilities, costs, expenses or assessments of
the United States of America or any state or political subdivision or taxing
authority thereof or therein (including any interest, penalties and additions
to tax thereon or thereto), which are levied, assessed or imposed on such Tax
Indemnitee, the Seller, any Tenant, the Owner Participant's Financing
(including without limitation, the Notes, the Bonds and any amounts and
expenses payable thereunder), the Properties or any part thereof or interest
therein or any addition, alteration, modification or improvement thereto, any
Remainder Interest, or the Rent payable under any Lease including, without
limitation, taxes or such other amounts that are or are in the nature of sales,
use, rental, value added and transfer taxes, and any and all water, sewer or
other such charges, excises, levies, fees, licenses, duties, withholdings,
permits, inspections, real property franchise charges and other governmental
charges of every character (in each case, regardless how named or denominated)
or any excise taxes, charges or penalties imposed on any Tax Indemnitee under
Section 4975 of the Code or Section 502 (i) or (1) of ERISA which, at any time
prior to, during or with respect to any period ending on or prior to, or
resulting from or attributable in any respect to acts or events occurring on or
prior to or relating to payments made by the Seller under the Operative
Documents at any time prior to or after, the later of (x) the expiration or
earlier termination of the relevant Lease and (y) the Seller's actual return of
possession of the Properties in accordance with the relevant Lease may be
levied, assessed or imposed on or in connection with or with respect to, any
Property, or any estate, right, title or interest therein, or any occupancy,
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operation, leasing, subleasing, use or possession of, or sales from, or other
activity conducted on any Property, any addition, alteration, modification or
improvement thereto, any Remainder Interest, any Lease, any Ground Lease or any
other Operative Document (including in each case any amendment, supplement,
waiver or consent thereto), the Owner Participant's Financing (including
without limitation, the Notes, the Bonds and any payments and expenses
thereunder), the Rents, and any other payments under the Operative Documents or
otherwise with respect to or in connection with the transactions contemplated
by the Operative Documents. Any such taxes, levies, charges, assessments or
other amounts payable or indemnifiable by Seller hereunder together with
Property Assessments payable or indemnifiable by Tenant hereunder shall be
referred to as "Taxes" for all purposes of this Master Indemnification
Agreement.
(2) Nothing in paragraphs (a) and (b) shall require Seller to pay or
reimburse any Tax Indemnitee for the payment of (w) any federal, state or
municipal net income tax, or any net profit, inheritance, estate, succession,
gift, or franchise tax (regardless how named or denominated) except for any
such tax (i) which is in Direct Substitution (which Direct Substitution is
documented by published administrative regulation, fiat or other official
ruling, notice or release of any kind and/or in a statutory enactment or
legislative history thereof by the state or political subdivision which enacted
and/or levied any such tax) for any Tax which Seller is obligated to pay under
this Master Indemnification Agreement or for which Seller has provided an
indemnity hereunder, (ii) which is, or is in the nature of, a real property
franchise charge, or a sales, use, rental, property, value added, or transfer
tax, (iii) which is indemnified as necessary to make any payments hereunder on
an After-Tax Basis, or (iv) any franchise tax if payment by Seller of such tax
is necessary to maintain the existence or financial solvency of the Owner
Participant, (x) any transfer tax imposed upon the sale of all or a part of the
Properties by the Owner Trustee except for (i) a sale and transfer pursuant to
Tenant's Purchase Offer or otherwise to Seller as set forth in Articles 3, 5,
15, 16, 18, 22 or 41 of the relevant Lease or any sale to a third party under
Article 5 of the relevant Lease, (ii) any disposition or transfer resulting in
connection with Articles 10, 11, 14, 18 or 42 of the relevant Lease (iii) a
transfer in connection with an Event of Default under the applicable Lease, and
(iv) any disposition or transfer resulting in connection with the
Reconveyance Agreement, (y) any tax, assessment, charge or levy imposed or
levied upon or assessed against any property, any income or any business
activity of a Tax Indemnitee to the extent such tax, assessment, charge or
levy would have been imposed or levied in the absence of the transactions
contemplated by the Operative Documents (including any intangibles tax imposed
with respect to any debt or investment paper of any Tax Indemnitee that is
unrelated to the transactions contemplated by the Operative Documents or the
Owner Participant's
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<PAGE> 10
Financing) or (z) with respect to a Tax Indemnitee, any tax resulting from the
willful misconduct (including tax fraud) or gross negligence of such Tax
Indemnitee.
(3) Notwithstanding any other provision of this Section 2 to the
contrary, (a) the Seller will indemnify, on an After-Tax Basis, each Trust,
each Owner Trustee and the Owner Participant (and any affiliate of the
foregoing) for any obligation with respect to United States federal withholding
taxes imposed on or payable by any Trust, any Owner Trustee (individually and
as Owner Trustee) or the Owner Participant (or any affiliate of the foregoing)
(x) with respect to the Owner Participant's Financing (or any debt issued to
refinance or refund such Owner Participant's Financing) or (y) as a result of a
claim by the Internal Revenue Service asserted against any Trust, any Owner
Trustee (individually and as Owner Trustee) or the Owner Participant (or any
affiliate of the foregoing) with respect to the Owner Participant's Financing
and (b) the Seller shall assume liability for, and indemnify, protect, defend,
save and keep harmless each Tax Indemnitee, on an After-Tax Basis, from and
against any and all Taxes that may be imposed on or with respect to, incurred
by or asserted against the Issuer, the Residual Bondholders or the Bond
Indenture Estate.
(4) (a) If any written claim shall be made against any Tax Indemnitee or
if any proceeding shall be commenced against any Tax Indemnitee (including a
written notice of such proceeding) for any Taxes as to which the Seller may
have an indemnity obligation pursuant to this Section 2, such Tax Indemnitee
shall promptly notify the Seller in writing and shall not take any action with
respect to such claim, proceeding or Tax without the written consent of the
Seller (which consent shall not be unreasonably withheld or delayed) for 60
days after the receipt of such notice by the Seller; provided, however, that,
in the case of any such claim or proceeding, if such Tax Indemnitee shall be
required by Laws to take action prior to the end of such 60-day period, such
Tax Indemnitee shall in such notice to the Seller, so inform the Seller, and
such Tax Indemnitee shall not take any action with respect to such claim,
proceeding or Tax without the written consent of Seller (which consent shall
not be unreasonably withheld or delayed) for 10 days after the receipt of such
notice by the Seller unless the Tax Indemnitee shall be required by Laws to
take action prior to the end of such 10-day period, in which case the Tax
Indemnitee may take any action with respect to such claim, proceeding or Tax
prior to the end of such 10-day period.
(b) If requested by the Seller within 60 days (or such shorter
period as specified in Section 2(4)(a) above) after receipt by the Seller of
the required notice with respect to the claim or proceeding that is the subject
of such notice, or, in the case of any claim or proceeding with respect to
which Seller (as opposed to the Tax Indemnitee) receives notice, upon the
request of the Seller, the applicable Tax Indemnitee either (i) in the case of
a
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Tax which may be contested in the name of the Seller and independently (without
joinder, contribution or otherwise) from any Tax that is not subject to
indemnification by the Seller, shall permit the Seller to, or, in the case of
any Tax, may request the Seller to, or (ii) in the case of a Tax which must be
contested in the name of such Tax Indemnitee, but which may be contested
independently (without joinder, contribution or otherwise) from any Tax that is
not subject to indemnification by the Seller, shall permit Seller to (so long
as, in the good faith judgment of such Tax Indemnitee, there is no reasonable
possibility that the Seller's direction of such contest could have any adverse
impact on the financial or public relation interests of such Tax Indemnitee, in
which case, such Tax Indemnitee may assert or reassert control of the contest;
provided, however, the foregoing shall not apply to any property tax contest)
(any contest described in the foregoing clauses (i) or (ii) (for so long as the
Seller controls the contest) being hereinafter referred to as a
"Seller-Controlled Contest"), or (iii) in the case of a Tax the contest of
which is not a Seller-Controlled Contest, shall itself, contest in good faith
(including, without limitation, by pursuit of appeals and administrative
procedures), the validity, applicability or amount of such Taxes. No matter
who is in control, a contest at the election of the Controlling Party (as
defined herein) may include, without limitation, a challenge to the validity,
applicability or amount of such Taxes by (A) resisting payment thereof, (B) not
paying the same except under protest (which protest must be pursued using
reasonable efforts in appropriate administrative and/or judicial proceedings)
if protest shall be necessary and proper or (C) if payment shall be made, using
reasonable efforts to obtain a refund thereof in appropriate administrative
and/or judicial proceedings (it being understood that Seller may appeal to the
United States Supreme Court with the prior written consent of the Tax
Indemnitee which consent shall not be unreasonably withheld); provided,
however, that in no event shall such contest be required or permitted unless:
(1) in the case of a contest which must be contested in the name of the Tax
Indemnitee, the amount at issue (taking into account all similar and logically
related claims with respect to the transactions contemplated by the Operative
Documents that have been or could be raised in an audit by the taxing authority
in question for any other taxable period with respect to which an assessment of
a tax deficiency is not barred by a statute of limitations, including, without
limitation, such claims that may arise in future periods) exceeds $25,000; (2)
Seller shall have agreed to pay such Tax Indemnitee and shall pay on an
After-Tax Basis as incurred all reasonable out-of-pocket costs and expenses
that such Tax Indemnitee shall incur in connection with the contest of such
claim (including, without limitation, all reasonable costs, expenses, legal and
accounting fees and disbursements); (3) such Tax Indemnitee shall have
reasonably determined that the action to be taken will not result in any
material danger of sale, forfeiture or loss of any of the Properties or
Remainder Interests or any part thereof or interest therein or the creation of
any Lien on any of
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<PAGE> 12
the Properties or Remainder Interests or any part thereof or interest therein
other than any Permitted Liens and that there is no risk of criminal liability
that may be imposed on or with respect to such Tax Indemnitee; (4) if such
contest shall involve payment of the claim, Seller shall advance the amount
thereof plus, as applicable, interest, penalties and additions to tax with
respect thereto to such Tax Indemnitee on an interest free basis (and in the
event there is a determination that such advance represents an interest-free
loan, at no additional net after-tax cost to such Tax Indemnitee but taking
into account any net tax savings associated with such advance); (5) no Event of
Default under the applicable Lease shall have occurred and be continuing (it
being agreed that in such case, the Tax Indemnitee shall consult in good faith
with Seller to determine whether Seller can provide to the Tax Indemnitee
reasonably satisfactory security to cover its indemnity obligations with
respect to amounts to be contested and its obligations under the foregoing
clause (2) of this proviso, in which case, such Event of Default shall not
deprive Seller of its contest rights hereunder; (6) in the case of a contest
which must be contested in the name of the Tax Indemnitee, (i) prior to
initiating the contest the Seller shall have furnished the Tax Indemnitee with
an opinion of independent tax counsel selected by the Seller and reasonably
acceptable to the Tax Indemnitee ("Tax Counsel") to the effect that a
Reasonable Basis exists for such contest and (ii) prior to the appeal of any
adverse judicial determination, Seller shall have furnished the Tax Indemnitee
with an opinion of Tax Counsel to the effect that it is more likely than not
that there will be a reversal or other substantial favorable modification of
such determination on appeal; and (7) the Seller shall have acknowledged in
writing its obligation to indemnify the Tax Indemnitee hereunder in the event
the contest is unsuccessful (in whole or in part); provided, however, that such
acknowledgement shall not preclude Seller from raising a defense to liability
under this Section 2 if a court of competent and proper jurisdiction has
rendered a decision that the cause of the claim is not one for which Seller is
responsible to pay an indemnity hereunder. In no event shall the Tax
Indemnitee be required to contest any claim required to be brought in its own
name if the subject matter of such claim shall be of a continuing nature and
shall have previously been the subject of an adverse final determination
hereunder after exercise by the Seller of its rights pursuant to this Section
2, unless the Seller shall have delivered to such Person an opinion of Tax
Counsel to the effect that as a result of a change in law or fact it is more
likely than not that the Tax Indemnitee will prevail in the contest of such
claim.
(c) The Seller shall conduct any Seller-Controlled Contest and the
relevant Tax Indemnitee shall control any contest other than a
Seller-Controlled Contest. The party conducting the contest ("Controlling
Party") shall consult in good faith with the other party ("Noncontrolling
Party") and its counsel with respect
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<PAGE> 13
to the contest of such claim for Taxes (or claim for refund) but the decisions
regarding what actions to be taken shall be made by the Controlling Party in
its sole judgment (exercised in good faith). In addition, the Controlling Party
shall keep the Noncontrolling Party reasonably informed as to the progress of
the contest, and shall provide the Noncontrolling Party with a copy of (or
appropriate excerpts from) any reports or claims issued by the relevant
auditing agents or taxing authority to the Controlling Party or any affiliate
thereof, in connection with such claim or the contest thereof. The Controlling
Party shall be responsible for the selection of counsel, which counsel must be
reasonably satisfactory to the Noncontrolling Party.
(d) Except as provided in the next sentence of this Section 2(4)(d),
the Tax Indemnitee shall not settle any contest hereunder without the consent
of Seller, which consent shall not be unreasonably withheld. Notwithstanding
anything contained in this Section 2, a Tax Indemnitee shall not be required to
contest any claim or permit the Seller to contest any claim and may settle any
contest without the consent of the Seller if such Tax Indemnitee (i) shall
waive its right to indemnity under this Section 2 with respect to such claim
for such Tax (and any claim made by any taxing authority with respect to other
taxable periods that are based, in whole or in part, upon the resolution of
such claim, or the contest of which is materially prejudiced by the resolution
of such claim, it being understood that standing alone the mere settlement of
the claim in the absence of legal authority to the contrary shall not be
deemed to be materially prejudicial, but it may be deemed to be evidence
thereof) and (ii) shall pay to the Seller any amount previously paid or
advanced by the Seller pursuant to this Section 2 with respect to such claim
for such Tax or the contest of such Tax other than the costs and expenses of
the contest of such claim paid by Seller in accordance with clause (2) of the
first proviso to Section 2(4)(b) hereof.
(e) Should any of the proceedings referred to in the preceding
paragraphs of this Section 2 result in reducing any amount of Taxes that
previously were imposed on or payable by any Tax Indemnitee and were paid by
Seller in accordance with this Section 2, Seller shall be entitled to receive
all net refund amounts paid by the taxing authorities to such Tax Indemnitee
(to the extent attributable to such Taxes paid by Seller in accordance with
this Section 2) after payment of all of such Tax Indemnitee's costs and
expenses incurred in any such proceeding in which a refund is paid (including
any Taxes payable with respect to such refund amount to the extent such taxes
are not creditable or refundable to or deductible by such Tax Indemnitee). Any
subsequent denial, loss or recapture of such refund will be treated as a Tax
for which the Seller must indemnify the Tax Indemnitee hereunder.
(5) Any amount payable by the Seller to a Tax Indemnitee
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<PAGE> 14
pursuant to this Section 2 shall be paid within 30 days after receipt by the
Seller of a written demand therefor from such Tax Indemnitee accompanied by a
written statement describing in reasonable detail the amount so payable, but
(except as provided in Article 7(d) of the Lease) shall in no event be payable
before the date such Tax is due. Any payments made pursuant to this Section 2
shall be made directly to the Tax Indemnitee entitled thereto or the Seller, as
the case may be, in immediately payable funds at such bank or to such account
as specified by the payee in written directions to the payor, or, if no such
direction shall have been given, by check of the payor payable to the order of
the payee and mailed to the payee by certified mail, postage prepaid at its
address as set forth in the Purchase Agreement or as provided to the payor from
time to time in writing. Any Taxes indemnified hereunder shall be payable by
the Seller, to the extent allowed, directly to the appropriate taxing authority
on or before the time, and in the manner, prescribed by applicable Laws,
without the necessity of any prior demand by a Tax Indemnitee.
(6) If any report, return or statement (a "Filing") is required to be
filed with respect to any Tax that is subject to indemnification under this
Section 2, the Seller shall promptly notify the appropriate Tax Indemnitee of
such requirement in writing and, if permitted by applicable Laws to do so, the
Seller shall timely file or cause to be filed such Filing with respect to such
Tax (except for any such Filing that a Tax Indemnitee has notified Seller in
writing that such Tax Indemnitee intends to file) and will (if ownership of
the Property or any part thereof or interest therein is required to be shown
on such Filing) show the ownership of the Property in the name of the Owner
Trustee and send a copy of such Filing to the appropriate Tax Indemnitee;
provided, however, that such Tax Indemnitee shall have furnished the Seller,
at the Seller's request, with such information, not within the control of the
Seller, as is in such Tax Indemnitee's control or is reasonably available to
such Tax Indemnitee and necessary to file such Filing; provided, further,
however, Seller shall pay all out-of-pocket expenses of the Tax Indemnitee in
connection therewith. If the Seller is not permitted by applicable Laws to
file any such Filing, the Seller will promptly notify the appropriate Tax
Indemnitee of such requirement in writing and prepare and deliver to the
appropriate Tax Indemnitee a proposed form of such Filing within a reasonable
time, and in all events at least 15 days prior to the time such Filing is
required to be filed. In the case of any Filing either required to reflect
items in addition to Taxes imposed on or indemnified against by the Seller
under this Section 2 or which the Tax Indemnitee has notified the Seller in
writing that it will prepare and file, Seller shall, upon the written request
of such Tax Indemnitee, provide such Tax Indemnitee with such information as
is within Seller's reasonable control or access. Seller shall hold each Tax
Indemnitee harmless from and against any liabilities, including, but not
limited to penalties, additions to tax, fines and interest,
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<PAGE> 15
arising out of any insufficiency or inaccuracy in any such Filing, if such
insufficiency or inaccuracy is attributable to Seller.
(7) Any payment or indemnity to or for the benefit of any Tax Indemnitee
with respect to any Tax which is subject to indemnification under Section 2
hereof shall (A) reflect the current combined net savings actually realized by
such Tax Indemnitee resulting from the current deduction of such indemnified
Tax and (B) include, after taking into account the savings described in clause
(A), the amount necessary to hold such Tax Indemnitee harmless on an After-Tax
Basis. If, by reason of any Tax payment made to or for the account of a Tax
Indemnitee by or on behalf of the Seller pursuant to this Section 2 (or the
circumstances or event giving rise thereto), such Tax Indemnitee actually
realizes a net tax benefit, refund, saving, deduction or credit not previously
taken into account in computing such payment, provided no Event of Default
under the applicable Lease has occurred and is continuing, such Tax Indemnitee
shall promptly pay to the Seller an amount equal to the sum of (I) the actual
net reduction in Taxes, if any, realized by such Tax Indemnitee which is
attributable to such net tax benefit, refund, saving, deduction or credit and
(II) the actual net reduction in any Taxes realized by such Tax Indemnitee as
the result of any payment made by such Tax Indemnitee pursuant to this
sentence. Notwithstanding the foregoing, no Tax Indemnitee shall be required
to make any payment to the Seller pursuant to this Section 2(7) to the extent
such payment would exceed, in the aggregate at any time, the amount of all
prior payments made by or on behalf of the Seller to such Tax Indemnitee less
the amount of all prior payments made by the Tax Indemnitee to the Seller
hereunder pursuant to this Section 2(7), but any such excess shall reduce pro
tanto any amount that the Seller is subsequently obligated to pay such
Indemnified Party pursuant to this Section 2. If any amount otherwise payable
to the Seller is not payable by reason of the occurrence and continuation of an
Event of Default under the applicable Lease, such amount shall be payable when
such Event of Default is no longer continuing. The disallowance or reduction
of any tax benefit, refund, savings, deduction or credit with respect to which
a Tax Indemnitee has made a payment to the Seller under this Section 2 shall be
treated as a Tax for which the Seller is obligated to indemnify such Tax
Indemnitee hereunder.
SECTION 3. Interest on Late Payments. If any amount payable hereunder
by the Seller is not paid when due, the Seller shall pay interest at the
Default Rate (as defined in the Lease for such Property) on such overdue
amount from and including the due date thereof to but excluding the date of
payment thereof.
SECTION 4. Notices. All notices, consents, directions, approval,
instructions, requests and other communications required or permitted by the
terms hereof to be given to any Persons shall be given in writing by United
States mail, by nationally recognized
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<PAGE> 16
courier service or by hand and any such notice shall become effective when
received if given by such courier service or by hand or five Business Days
after being deposited in the mails, certified or registered with appropriate
postage prepaid and shall be directed to the address of such Person as set
forth on the signature pages hereof. From time to time any party may designate
a new address for purposes of notice hereunder by notice in writing to each of
the other parties hereto.
SECTION 5. Survival. The covenants, indemnities, agreements,
obligations, and liabilities of the Seller provided for in this Master
Indemnification Agreement and each Indemnitee's or Tax Indemnitee's, as the
case may be, obligations and liabilities under this Master Indemnification
Agreement shall continue in full force and effect, notwithstanding the
expiration or other termination of the Leases or any other Operative Document,
until all such obligations have been met and such liabilities have been paid in
full. The obligations and liabilities of the Seller and each Indemnitee or Tax
Indemnitee, as the case may be arising under this Master Indemnification
Agreement are expressly made for the benefit of, and shall be enforceable by,
the Seller and each Indemnitee or Tax Indemnitee, as the case may be, and their
permitted respective successors and assigns under the Operative Documents.
Nothing in this Master Indemnification Agreement shall be deemed to impair the
rights of any other Person under any other Operative Document.
SECTION 6. Governing Law; Consent to Jurisdiction. This Master
Indemnification Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to provisions governing
conflict of laws. Each of the parties agrees that any legal suit, action or
proceeding arising out of or based upon this Master Indemnification Agreement
may be instituted in any state or federal court in New York County, New York,
and waives, to the extent it may effectively do so, any objection which it may
have now or hereafter to the laying of the venue of any such suit, action or
proceeding, and irrevocably submits on a non-exclusive basis to the
jurisdiction of any such court in any such suit, action or proceeding.
SECTION 7. Counterparts. This Master Indemnification Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original and all of which together shall constitute a single instrument.
SECTION 8. Setoff, Counterclaim, Etc. Except as explicitly provided
herein, no payment required to be made by the Seller or any Indemnitee or Tax
Indemnitee, as the case may be, pursuant to this Master Indemnification
Agreement shall be subject to any right of setoff, counterclaim, defense,
abatement, suspension, deferment or reduction, and neither the Seller nor any
Indemnitee or Tax Indemnitee, as the case may be, shall have any
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<PAGE> 17
right to be released, relieved, or discharged from any obligation or liability
under this Master Indemnification Agreement for any reason whatsoever. Nothing
contained herein shall be construed to waive any claim which the Seller or the
Indemnitee or Tax Indemnitee, as the case may be, might have under any of the
Operative Documents (including this Master Indemnification Agreement and
including, without limitation, claims or defenses that indemnity or other
payments demanded from or paid by the Seller or the Indemnitee or Tax
Indemnitee, as the case may be, are or were erroneous) or otherwise or to limit
the right of the Seller or any Indemnitee or Tax Indemnitee, as the case may
be, to make any claim it might have against the other or any other Person or to
pursue such claim in such manner as the Seller or, the Indemnitee or Tax
Indemnitee, as the case may be, shall deem appropriate.
SECTION 9. Effect of Other Indemnities. The Seller's obligations under
the indemnities provided for in this Master Indemnification Agreement shall be
those of a primary obligor whether or not the Indemnitee or Tax Indemnitee, as
the case may be, shall also be indemnified with respect to the same matter
under the terms of the Purchase Agreement, any Trust Agreement or any other
document or instrument, and the Indemnitee or Tax Indemnitee, as the case may
be, may in seeking indemnification from the Seller pursuant to any provisions
of this Master Indemnification Agreement proceed directly against the Seller
without seeking to enforce any other right of indemnification (it being agreed
that the foregoing is not intended to grant any Indemnitee or Tax Indemnitee,
as the case may be, any right to any double recovery or indemnity with respect
to any claim hereunder for which such Indemnitee or Tax Indemnitee, as the case
may be, has received (and is entitled to retain) full indemnification). If the
Seller shall have fully indemnified any Indemnitee or Tax Indemnitee hereunder,
then the Seller shall be subrogated to the rights of such Indemnitee or Tax
Indemnitee, as the case may be, with respect to such indemnified claim.
SECTION 10. Miscellaneous. Any provision of this Master Indemnification
Agreement which is prohibited and unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction. This Master
Indemnification Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute but one and the
same instrument. Neither this Master Indemnification Agreement nor any of the
terms hereof may be terminated, amended, supplemented, waived or modified
orally, but only by an instrument in writing signed by the party against which
the enforcement of the termination, amendment, supplement, waiver or
modification is
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<PAGE> 18
sought. The headings of the various Sections of this Master Indemnification
Agreement are for convenience of reference only and shall not modify, define,
expand or limit any of the terms or provisions hereof. The terms of this
Master Indemnification Agreement shall be binding upon, and inure to the
benefit of, the Seller and its successors and assigns and each Indemnitee and
Tax Indemnitee, as the case may be, and its successors and assigns.
SECTION 11. Certain Definitions. "After-Tax Basis" shall mean with
respect to any payment to be received by an Indemnitee (which, for purposes of
this definition, shall include any Tax Indemnitee and, for purposes of the Tax
Indemnification Agreement, the Owner Participant (as defined therein)), the
amount of such payment supplemented by a further payment or payments so that,
after deducting from such aggregate payments the amount of all Taxes (net of
any actual current credits, deductions or other Tax benefits arising from the
payment by the Indemnitee of any amount, including Taxes, for which the payment
to be received is made) actually imposed currently on the Indemnitee with
respect to such payments, the balance of such payments shall be equal to the
original payment to be received.
"Bond" or "Bonds" shall have the meaning set forth in the Bond Indenture.
"Bond Financing" shall have the meaning set forth in Recital I of the
Purchase Agreement.
"Bond Indenture" shall mean the Collateral Trust Indenture which shall
be entered into by the Issuer and the Bond Trustee in connection with the bond
financing, as the same may be amended, modified or supplemented from time to
time.
"Bond Indenture Estate" shall mean the Trust Estate as defined in the
securing clause of the Bond Indenture.
"Bond Trustee" shall mean the Bank of New York as Bond Trustee under the
Bond Indenture.
"Claims" shall mean liabilities, obligations, damages, losses, demands,
penalties, fines, claims (including, without limitation, Environmental Claims),
actions, suits, judgments, administrative or judicial orders, settlements,
utility charges, costs, expenses and disbursements (including, without
limitation, legal fees and expenses and costs of investigation) of any kind and
nature whatsoever.
"Environmental Claims" shall mean any and all administrative, regulatory
or judicial actions or causes of action, suits, obligations, liabilities,
losses, proceedings, decrees, judgments, penalties, fees, demands, demand
letters, orders, directives, claims (including any claims involving liability
in
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<PAGE> 19
tort, strict, absolute or otherwise), liens, notices of noncompliance or
violation, and legal fees or costs of investigations or proceedings, relating
in any way to any Environmental Law or arising from the presence or Release (or
alleged presence or Release) into the environment of any Hazardous Materials
(hereinafter "Claims") including, without limitation, and regardless of the
merit of such Claim, any and all Claims by any governmental or regulatory
authority or by any third party for enforcement, cleanup, removal, containment,
restoration, corrective action, response, remedial or other actions or damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
pursuant to any Environmental Law or any alleged injury or threat of injury to
human health, safety, the environment or natural resources.
"Environmental Laws" shall mean all federal, state, and local laws,
ordinances, rules, regulations, requirements, permits, licenses,
authorizations, approvals, criteria, guidelines, and judicial and
administrative orders, decrees, or judgments, now or hereafter in effect, and
in each case as amended, and any judicial or administrative interpretation
thereof, relating to the regulation and protection of human health, safety, the
environment and natural resources including, without limitation, laws (and all
other items recited above) relating to emissions, discharges, releases,
threatened releases or remediation of, or any other response action related to,
Hazardous Materials (as herein defined) or otherwise relating to the
generation, use, treatment, storage, recycling, disposal, transport, or
handling of or exposure to Hazardous Materials. Environmental Laws include but
are not limited to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980 ("CERCLA"); the Resource Conservation and Recovery Act
("RCRA"); the Federal Insecticide, Fungicide, and Rodenticide Act; the Toxic
Substances Control Act; the Clean Air Act; the Federal Water Pollution Control
Act; the Oil Pollution Act of 1990; the Endangered Species Act; the National
Environmental Policy Act; the Hazardous Materials Transportation Act; the
Occupational Safety and Health Act; and the Safe Drinking Water Act; each as
amended from time to time, and each of their state and local counterparts or
equivalents.
"Hazardous Materials" shall mean (i) "hazardous substances," as defined
by CERCLA, as amended from time to time and any regulations promulgated
thereunder; (ii) "hazardous wastes," as defined by RCRA, as amended from time
to time and any regulations promulgated thereunder; (iii) any pollutant or
contaminant or hazardous, restricted, dangerous or toxic chemicals, materials,
wastes or substances within the meaning of any Environmental Law; (iv) any
chemical, material, substance, or waste, the presence, use, generation,
treatment, release, emission, discharge, transport, storage, or disposal of
which is now or hereafter prohibited, limited or regulated by any Environmental
Law or governmental authority; (v) any substance, material, product,
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<PAGE> 20
chemical, derivative, compound, mixture, mineral, waste, gas, medical waste,
contaminant or pollutant which would require investigation, response or
remediation as a result of any public or private action brought pursuant to any
Environmental Law; (vi) any radioactive material, asbestos in any form or
condition, petroleum or petroleum products, flammable explosives, urea
formaldehyde foam insulation, polychlorinated biphenyls, and radon gas.
"INITIAL NOTES" SHALL HAVE THE MEANING SET FORTH IN RECITAL I TO THE
PURCHASE AGREEMENT.
"ISSUER" SHALL HAVE THE MEANING SET FORTH IN RECITAL I TO THE PURCHASER
AGREEMENT.
"Note" or "Notes" shall have the meaning set forth in Appendix A to the
applicable Note Indenture.
"Note Financing" shall have the meaning set forth in Recital I to the
Purchase Agreement.
"Note Indenture" shall mean each of the Trust Indenture, Assignment of
Lease and Rents and Security Agreements dated as of December 15, 1993
between the applicable Owner Trustee and the Note Trustee, as the same may be
amended, modified or supplemented from time to time.
"Note Indenture Estate" shall have the meaning set forth in Appendix A to
each Note Indenture.
"Note Trustee" shall have the meaning set forth in Appendix A to each
Note Indenture.
"Owner Participant's Financing" shall mean the Note Financing and the
Bond Financing, including without limitation any and all instruments and
documents executed and delivered from time to time in connection therewith.
"Reasonable Basis" for a position shall exist if tax counsel may properly
advise reporting such position on a tax return in accordance with Formal
Opinion 85-352 issued by the Standing Committee on Ethics and Professional
Responsibility of the American Bar Association.
"Release" shall mean the release, deposit, disposal or leak of any
Hazardous Material into, upon or under any land, water or air, or otherwise
into the environment, including without limitation by means of burial,
disposal, discharge, emission, injection, spillage, leakage, seepage, leaching,
dumping, pumping, pouring, escaping, emptying, placement and the like.
"REMAINDER PURCHASER TRUST AGREEMENTS" SHALL MEAN THE TRUST AGREEMENTS
DATED AS OF DECEMBER 15, 1993 BETWEEN THE
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<PAGE> 21
REMAINDER PURCHASER AND THE REMAINDER TRUSTEES.
"REMAINDER TRUSTS" SHALL MEAN THE TRUST ESTATES CREATED UNDER THE
REMAINDER PURCHASER TRUST AGREEMENTS.
"Residual Bondholders" Shall mean the holders of the Series AR, BR and CR
Bonds.
"Series AR Bonds" Shall have the meaning set forth in the Bond Indenture.
"Series BR Bonds" Shall have the meaning set forth in the Bond Indenture.
"Series CR Bonds" Shall have the meaning set forth in the Bond Indenture.
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<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this Master
Indemnification Agreement to be duly executed by their respective officers
thereunto duly authorized as of the day and year first written above.
KMART CORPORATION
Address:
3100 West Big Beaver Road
Troy, Michigan 48084 By: _______________________
Name: M.L. Skiles
Title: Senior Vice President
RETRAM, INC.
Address:
1900 Indian Wood Circle
Maumee, OH 43537 By: ________________________
ATTN: Capital Markets Group Name: Paul J. Bishop
Title: Vice President
BANKERS TRUST COMPANY
Address:
280 Park Avenue, 23W
New York, NY 10017 BY: ________________________
Name:
Title:
FGHK, LTD., A WYOMING LIMITED
LIABILITY COMPANY
BY: PINE STREET CAPITAL CORPORATION
Address:
2 Brentwood Commons, Ste. 150
Brentwood, TN 37027 BY: ________________________
Name: James R. Greene
Title: President
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, individually and
as Owner Trustee
Address:
777 Main Street By: ________________________
Hartford, CT 06115 Name: Robert L. Reynolds
Attn: Corporate Trust Title: Asst. Vice President
Administration
<PAGE> 23
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, individually and as Remainder
Trustee
Address:
777 Main Street
Hartford, CT 06115 By: _________________________
Attn: Corporate Trust Name: Robert L. Reynolds
Administration Title: Asst. Vice President
THE BANK OF NEW YORK,
individually and as Note
Trustee
Address:
101 Barclay Street, 22nd Floor
New York, NY 10286 By: _________________________
Name:
Title:
SOCIETY NATIONAL BANK, individually
and as owner trustee,
Address:
3 Seagate, 3rd Floor By: _______________________
Toledo, OH 43604 Name:
Attn: Lisa Garrett Title:
SOCIETY NATIONAL BANK, individually
and as remainder trustee,
Address:
3 Seagate, 3rd Floor By: _______________________
Toledo, OH 43604 Name:
Attn: Lisa Garrett Title:
<PAGE> 1
Exhibit 99.6
FIRST AMENDMENT TO
MASTER INDEMNIFICATION AGREEMENT
Dated as of March ___, 1994
between
KMART CORPORATION,
as Seller
and
RETRAM, Inc.,
as Owner Participant,
FGHK, LTD., A WYOMING LIMITED LIABILITY COMPANY,
as Remainder Purchaser,
SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION,
individually and as Remainder Trustee
and as Owner Trustee,
SOCIETY NATIONAL BANK,
individually and as Remainder Trustee
and as Owner Trustee,
BANKERS TRUST COMPANY,
as Initial Loan Participant,
FGHK, Inc.,
as Issuer of the Bonds,
RRMA, Inc.,
as Holder of the Series AR Bonds,
RRMB, Inc.,
as Holder of the Series BR Bonds,
RRMC, Inc.,
as Holder of the Series CR Bonds
and
THE BANK OF NEW YORK,
individually, as Note Trustee and as Bond Trustee
<PAGE> 2
FIRST AMENDMENT TO MASTER INDEMNIFICATION AGREEMENT ("First Amendment")
dated as of March ___, 1994 between KMART CORPORATION, a Michigan corporation
(the "Seller"), RETRAM, Inc., a Delaware corporation (the "Owner Participant"),
FGHK, LTD., A WYOMING LIMITED LIABILITY COMPANY, as Remainder Purchaser (the
"Remainder Purchaser"), SHAWMUT BANK CONNECTICUT, NATIONAL ASSOCIATION, a
national banking association , individually, as Owner Trustee and as Remainder
Trustee ("Shawmut"), SOCIETY NATIONAL BANK, individually, as Remainder Trustee
and as Owner Trustee ("SNB"), BANKERS TRUST COMPANY, as Initial Loan
Participant (the "Initial Loan Participant"), FGHK, INC., a New York
corporation, as Bond Issuer, RRMA, INC., a New York corporation, as holder of
the Series AR Bonds, RRMB, INC., a New York corporation, as holder of the
Series BR Bonds, RRMC, INC., a New York corporation, as holder of the Series
CR Bonds, and THE BANK OF NEW YORK ("BONY"), individually, as Note Trustee and
as Bond Trustee.
W I T N E S S E T H:
WHEREAS, the Seller, the Owner Participant, the Remainder Purchaser,
Shawmut, SNB, the Initial Loan Participant and BONY, individually and as Note
Trustee, have entered into that certain Master Indemnification Agreement, dated
as of December 15, 1993 (the "Agreement"); and
WHEREAS, in connection with the refinancing of the Notes and the Bond
Financing (as such terms are defined in the Agreement), the parties to the
Agreement wish to amend the Agreement and to add certain additional parties as
set forth in this First Amendment;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Defined Terms. All capitalized terms not defined herein shall
have the meanings specified in the Agreement.
SECTION 2. Amendments. The Agreement is hereby amended as follows:
(a) The following parties are added to the definition of
"Indemnitee" contained in the first sentence of Section 1 of the Agreement:
FGHK, Inc., the Residual Bondholders, the Bond Trustee (in its individual
capacity and as trustee under the Bond Indenture for the benefit of the holders
of the Bonds) and the Bond Indenture Estate and each of their respective
affiliates, successors, permitted assigns, permitted transferees, servants,
employees,
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<PAGE> 3
agents, shareholders, directors and officers.
(b) The following parties are added to the definition of "Tax
Indemnitee" contained in the first sentence of Section 2 of the Agreement:
FGHK, Inc., the Residual Bondholders, the Bond Trustee (in its individual
capacity and as trustee under the Bond Indenture for the benefit of the holders
of the Bonds) and the Bond Indenture Estate and each of their respective
affiliates, successors, permitted assigns, permitted transferees, servants,
employees, agents, shareholders, directors and officers.
SECTION 3. Additional Parties. The following parties (the
"Additional Parties") shall be added as parties to the Agreement as of the date
of this First Amendment: FGHK, Inc., the Residual Bondholders and the Bond
Trustee (in its individual capacity and as trustee under the Bond Indenture for
the benefit of the holders of the Bonds). The Additional Parties agree to be
bound by the terms and provisions of the Agreement, as amended by this First
Amendment.
SECTION 4. Full Force and Effect. Except as expressly amended and
modified by this First Amendment, the Agreement shall continue to be, and shall
remain, in full force and effect in accordance with its terms.
SECTION 5. No Other Terms. This First Amendment shall be effective
solely to the extent set forth herein, and is not and shall not be construed to
be an amendment of any other term or condition of the Agreement.
SECTION 6. Governing Law. This First Amendment shall be governed
by and construed in accordance with the laws of the State of New York without
regard to provisions governing conflict of laws.
SECTION 7. Counterparts. This First Amendment may be executed in
any number of counterparts, each of which shall be deemed to be an original and
all of which together shall constitute a single instrument.
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<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be duly executed by their respective officers thereunto duly
authorized as of the day and year first written above.
KMART CORPORATION
Address:
3100 West Big Beaver Road
Troy, Michigan 48084 By: _______________________
Name: M.L. Skiles
Title: Senior Vice President
RETRAM, INC.
Address:
1900 Indian Wood Circle
Maumee, OH 43537 By: ________________________
Attn: Capital Markets Group Name: Paul J. Bishop
Title: Vice President
BANKERS TRUST COMPANY
Address:
280 Park Avenue, 23W
New York, NY 10017 By: ________________________
Name:
Title:
FGHK, LTD., A WYOMING LIMITED
LIABILITY COMPANY
By: PINE STREET CAPITAL CORPORATION
Address: as Manager
2 Brentwood Commons
Suite 150 By: ________________________
Brentwood, TN 37027 Name: James R. Greene
Title: Vice President
<PAGE> 5
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION, individually and
as Owner Trustee
Address:
777 Main Street By: ________________________
Hartford, CT 06115 Name: Robert L. Reynolds
Attn: Corporate Trust Title: Asst. Vice President
Administration
SHAWMUT BANK CONNECTICUT, NATIONAL
ASSOCIATION,individually and as
Remainder Trustee
Address:
777 Main Street
Hartford, CT 06115 By: _________________________
Attn: Corporate Trust Name: Robert L. Reynolds
Administration Title: Asst. Vice President
SOCIETY NATIONAL BANK, individually
and as Owner Trustee,
Address:
3 Seagate, 3rd Floor By: _______________________
Toledo, OH 43604 Name:
Attn: Lisa Garrett Title:
SOCIETY NATIONAL BANK, individually
and as Remainder Trustee,
Address:
3 Seagate, 3rd Floor By: _______________________
Toledo, OH 43604 Name:
Attn: Lisa Garrett Title:
<PAGE> 6
FGHK, Inc.
Address:
c/o Pine Street Capital Corporation By: ________________________
750 Old Hickory Boulevard Name:
Two Brentwood Commons, Suite 150 Title:
Brentwood, TN 37027
Attn: James R. Greene
RRMA, Inc.
Address:
c/o Pine Street Capital Corporation By: ________________________
750 Old Hickory Boulevard Name:
Two Brentwood Commons, Suite 150 Title:
Brentwood, TN 37027
Attn: James R. Greene
RRMB, Inc.
Address:
c/o Pine Street Capital Corporation By: ________________________
750 Old Hickory Boulevard Name:
Two Brentwood Commons, Suite 150 Title:
Brentwood, TN 37027
Attn: James R. Greene
RRMC, Inc.
Address:
c/o Pine Street Capital Corporation By: ________________________
750 Old Hickory Boulevard Name:
Two Brentwood Commons, Suite 150 Title:
Brentwood, TN 37027
Attn: James R. Greene
THE BANK OF NEW YORK,
individually and as Note
Trustee
Address:
101 Barclay Street, 22nd Floor
New York, NY 10286 By: _________________________
Name:
Title:
THE BANK OF NEW YORK,
individually and as Bond
Trustee
Address:
101 Barclay Street, 22nd Floor
New York, NY 10286 By: _________________________
Name:
Title:
